India’s Bond Yields Decline to 3-Month Low as RBI May Cut Rates

India’s bonds rose for a fourth day on speculation the central bank will reduce borrowing costs to bolster the slowing economy.

The Reserve Bank of India will lower the benchmark repurchase rate by 25 basis points to 7.75 percent on June 18, according to 17 of 23 economists in a Bloomberg survey. Four predicted the central bank will leave the rate unchanged and two forecast a 50 basis-point cut. Inflation accelerated to 7.5 percent in May from 7.23 percent in April, according to a Bloomberg survey before data due today.

“India’s bigger concern now is to ensure that growth doesn’t slow too rapidly,” said Vishnu Varathan, a Singapore- based economist at Mizuho Corporate Bank Ltd. “The inflation print will be higher, but with global oil prices receding and growth concerns intensifying policy rates are likely to go lower.”

The yield on the government’s 8.79 percent bonds due November 2021 fell two basis points, or 0.02 percentage point, to 8.27 percent as of 9:39 a.m. in Mumbai, according to the central bank’s trading system. That was the lowest level since March 7.

Factory output increased 0.1 percent in April from a year earlier after a revised 3.2 percent drop in March, the Central Statistical Office said in a statement this week. Gross domestic product rose 5.3 percent in the first quarter from a year earlier, the least in nine years, official data showed on May 31.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell three basis points to 7.47 percent, the lowest level since April 2011, according to data compiled by Bloomberg.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net; Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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