Indian Bond Yields at Seven-Week Low as Cash-Ratio Cut Predicted

India’s 10-year bond yield held at a seven-week low on optimism the central bank will cut reserve requirements for lenders for a fifth time this year to release more funds into markets and support the economy.

The Reserve Bank of India will reduce the cash-reserve ratio by 25 basis points to 4 percent today, according to 20 of 24 economists in a Bloomberg News survey. One predicts a 50 basis point cut while the rest see no change. The economy will expand by about 5.7 percent to 5.9 percent in the year through March, the finance ministry said yesterday, less than an earlier forecast of as much as 7.85 percent.

“The reserve requirement may be cut to keep liquidity comfortable and to signal the RBI is committed to a softening cycle,” said Killol Pandya, the Mumbai-based head of fixed- income investments at the local unit of Daiwa Asset Management Co. “At the macro level, nothing much has changed since the last policy so interest rates are unlikely to be cut.”

The yield on the 8.15 percent notes due June 2022 was little changed at 8.14 percent as of 9:35 a.m. in Mumbai, according to the central bank’s trading system. That’s the lowest level since Oct. 29. The yield dropped 43 basis points this year as the central bank cut the reserve ratio by 175 basis points and the repurchase rate by 50 basis points.

The central bank will hold the repo rate at 8 percent, according to 25 of 27 analysts surveyed by Bloomberg. State Bank of India (SBIN), the nation’s largest lender, predicted a 50 basis point decrease while Goldman Sachs Group Inc. forecast a 25 basis point reduction.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose one basis point to 7.64 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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