India’s 10-year bond yields were near a seven-week low on speculation the central bank will cut lenders’ reserve requirements for a fifth time this year to pump funds into markets, spurring demand for debt.
The Reserve Bank of India will lower the proportion of deposits banks must set aside as reserves by 25 basis points to 4 percent on Dec. 18, according to 13 of 17 economists in a Bloomberg survey. One predicted a 50 basis point reduction, while the rest expect no change. The RBI bought 116 billion rupees ($2.1 billion) of notes at an open-market auction this week. India will report today inflation accelerated to 7.6 percent last month from 7.45 percent in October, a separate survey showed.
“Liquidity concerns are continuing,” said Harihar Krishnamoorthy, Mumbai-based treasurer at FirstRand Ltd. (FSR)’s India unit. “In addition to the open-market purchases, the RBI may focus on injecting cash through a reserve-ratio cut.”
The yield on the 8.15 percent notes due June 2022 was at 8.165 percent as of 9:16 a.m., according to the central bank’s trading system. It was at 8.159 percent yesterday, the lowest level since Oct. 29. The yield is little changed this week.
The monetary authority last cut the reserve ratio by 25 basis points, or 0.25 percentage point, on Oct. 30, taking the total reduction this year to 175 basis points. The RBI has released more than 2.7 trillion rupees into the financial system this year via steps including reserve reductions and securities purchases to spur Asia’s third-largest economy, which expanded last quarter at the slowest pace since 2009.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, was little changed today at 7.67 percent, data compiled by Bloomberg show. It rose two basis points this week.
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