India’s Bonds Set for Third Weekly Gain After Reserve Ratio Cut

India’s 10-year bonds headed for a third weekly gain after the central bank unexpectedly reduced the proportion of deposits lenders must set aside as reserves, boosting the supply of funds.

Reserve Bank of India Governor Duvvuri Subbarao cut the cash reserve ratio to 4.5 percent from 4.75 percent on Sept. 17 in the first decrease since March, adding an estimated 170 billion rupees ($3.1 billion) to the banking system. Bonds also gained on optimism a decline in international oil prices will help curb inflation in India, which imports about 80 percent of the petroleum it uses. Brent crude fell 5.4 percent this week, data compiled by Bloomberg show.

“The resumption of monetary easing is positive for bonds,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. (DEVB) in Mumbai. “The decline in oil prices will help ease concerns over inflation.”

The yield on the 8.15 percent notes due June 2022 fell two basis points, or 0.02 percentage point, this week to 8.16 percent, as of 9:55 a.m. in Mumbai, according to the central bank’s trading system.

The central bank kept the repurchase rate unchanged this week after inflation exceeded 7 percent in August for a sixth month this year, according to official data. The RBI cut last cut its benchmark rate by 50 basis points to 8 percent in April.

The wholesale-price index rose 7.55 percent from a year earlier, after climbing 6.87 percent in July, the Commerce Ministry said in a statement on Sept. 14.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell three basis points this week to 7.72 percent, according to data compiled by Bloomberg. It rose one basis point today.

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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