India’s One-Year Swaps at Six-Week Low After Reserve-Ratio Cut

India’s one-year interest-rate swaps fell to the lowest level in six weeks after the central bank reduced the amount of deposits lenders must set aside as reserves to free up funds and spur economic growth.

Governor Duvvuri Subbarao cut the cash reserve ratio to 4.5 percent from 4.75 percent, effective Sept. 22, adding about 170 billion rupees ($3.1 billion) to the banking system, the Reserve Bank of India said yesterday. Asia’s third-largest economy expanded 5.5 percent in the three months through June 30, near the 5.3 percent growth in the previous quarter that was the slowest since 2009.

“This measure could be a more preferred route to signal a bias towards easing of the monetary policy stance without deviating from the anti-inflationary stance,” Kotak Mahindra Bank Ltd. (KMB) economists including Indranil Pan wrote in a research note today. “Additional CRR cuts to signal an easier monetary stance is not ruled out and will depend on the overall liquidity trajectory.”

The fixed payment to lock in one-year borrowing costs fell two basis points to 7.71 percent in Mumbai, according to data compiled by Bloomberg. That’s the lowest level since Aug. 7.

Three of 39 economists in a Bloomberg News survey forecast the reduction in lenders’ reserve requirements to the lowest level since 2004. The rest predicted there would be no change, after two earlier cuts in 2012.

At yesterday’s policy review, the central bank left the repurchase rate unchanged for a third meeting to fight inflation.

Consumer prices rose at the fastest pace in three months in August as costs of vegetables and sugar increased. The consumer- price index climbed 10.03 percent from a year earlier, compared with a 9.86 percent advance reported earlier for July, the Statistics Office said in New Delhi today.

The rate at which banks borrow overnight from the monetary authority was last cut by 50 basis points to 8 percent in April.

The yield on the 8.15 percent notes due June 2022 dropped one basis points, or 0.01 percentage point, to 8.17 percent in Mumbai, according to the central bank’s trading system.

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

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