India’s One-Year Swaps at Four-Week Low as Cash Supply Improves

India’s one-year interest-rate swaps fell to the lowest level in almost four weeks on speculation cash supply in the banking system is improving as lending slows.

Lenders’ overnight borrowings from the central bank to meet cash shortages, a gauge of interbank funding availability, dropped to 21.2 billion rupees ($380 million) today from 338.7 billion rupees on Aug. 30, official figures show. Loan growth averaged 17.3 percent so far in 2012, compared with 21.6 percent a year earlier. Asia’s third-largest economy grew 5.5 percent last quarter, following a 5.3 percent expansion in the previous three months that was the slowest since 2009.

“The drastic increase in liquidity has pushed down swap rates,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. (DEVB) in Mumbai. “Banks are awash with cash as a slower economy has affected credit growth.”

The fixed payment to lock in one-year borrowing costs fell one basis point to 7.75 percent in Mumbai, according to data compiled by Bloomberg. That is the lowest level since Aug. 10.

The yield on the 8.15 percent notes due June 2022 dropped two basis points, or 0.02 percentage point, to 8.16 percent in Mumbai, according to the central bank’s trading system. That was the lowest level since Aug. 9.

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.