India Bond Yields at Six-Week Low as Reserve-Ratio Cut Predicted

India’s 10-year bonds gained, pushing the yield to a six-week low, as economists predict the central bank will cut cash-reserve requirements for lenders next week to the least since 1976.

The Reserve Bank of India will lower the proportion of funds that must be set aside by 25 basis points, or 0.25 percentage point, to 4 percent on Dec. 18, according to 11 of 15 economists in a Bloomberg News survey. One forecasts a 50 basis point reduction, while the rest expect no change.

“The RBI may cut the CRR to support recent efforts to boost growth,” said Upasna Bhardwaj, an economist at ING Vysya Bank Ltd. in Mumbai. “The central bank is likely to be proactive in liquidity management.”

The yield on the 8.15 percent notes maturing in June 2022 fell one basis point to 8.167 percent as of 10:30 a.m. in Mumbai, according to the central bank’s trading system. That’s the lowest level since Oct. 29.

Asia’s third-largest economy grew 5.3 percent in the July to September quarter, according to government data, matching the slowest pace since 2009. The monetary authority last cut the reserve requirement by 25 basis points on Oct. 30, taking the total reduction to 175 basis points this year.

The central bank resumed bond purchases this month, after a five-month hiatus, to boost cash supplies and revive the economy. The RBI has bought 1.1 trillion rupees ($20.3 billion) of government debt so far this fiscal year that started April 1.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell two basis points to 7.66 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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