Indian Bond Yields Decline to Three-Month Low on Easing Optimism

India’s 10-year bonds rose, pushing the yield to a three-month low, on optimism the central bank will ease monetary policy next week to support the government’s efforts to counter an economic slowdown.

Reserve Bank of India Governor Duvvuri Subbarao will cut reserve requirements for banks from an eight-year low of 4.5 percent at an Oct. 30 review, according to 20 of 28 economists in a Bloomberg survey. Eight predict no change. He will also lower the repurchase rate from 8 percent, according to 12 of the analysts, while the rest expect the benchmark to be left unchanged. Prime Minister Manmohan Singh has cut fuel subsidies and eased foreign-investment rules since mid-September.

“Some easing in monetary policy can’t be ruled out following recent steps by the government to revive growth,” said Srinivasa Raghavan, an executive vice president at Dhanlaxmi Bank Ltd. (DHLBK) in Mumbai.

The yield on the benchmark 8.15 percent notes due June 2022 fell one basis point, or 0.01 percentage point, today in Mumbai, matching the lowest level since July 27 reached last week, according to the central bank’s trading system. The market will be closed tomorrow for a holiday.

The RBI has reduced the cash reserve ratio by 150 basis points and lowered the repo rate by 50 basis points this year. Quarterly expansion in Asia’s third-largest economy averaged 5.4 percent in the first half of 2012, compared with 7.5 percent in the whole of 2011.

The one-year interest-rate swap, derivative contracts used to guard against fluctuations in funding costs, fell one basis point to 7.60 percent, data compiled by Bloomberg show.

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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