India’s 10-Year Bond Yield at 27-Month Low on Easing Speculation

India’s 10-year bonds rose, pushing the yield to a 27-month low, on speculation the central bank will reduce interest rates this quarter to revive growth.

The Reserve Bank of India will lower the repurchase rate by 50 basis points to 7.5 percent by the end of March, after keeping it unchanged since April, according to 11 of 20 analysts surveyed by Bloomberg. The next review is on Jan. 29. Government data due tomorrow will show industrial output rose 0.1 percent in November, compared with an 8.2 percent increase in October, according to a separate Bloomberg News survey.

The yield on the 8.15 percent bonds due June 2022 fell two basis points to 7.88 percent in Mumbai, according to the central bank’s trading system. The rate is the lowest for a benchmark 10-year security since Sept. 29, 2010. The yield has fallen 30 basis points since the end of November.

“Expectations of an easing in monetary policy are reflected in the recent bond rally,” said Srinivasa Raghavan, an executive vice president of treasury at Dhanlaxmi Bank Ltd. (DHLBK) in Mumbai. “Factory production data and inflation data due in coming days will influence the size of the rate cut.”

Wholesale prices probably rose 7.37 percent in December, according to a Bloomberg survey before the data are published on Jan. 14. Prices increased 7.24 percent in November, the slowest pace in 10 months, official data show.

Seven of the economists surveyed on the repurchase rate see a 25 basis point reduction by the end of this quarter. Of the remaining three, UBS AG expects a 100 basis point cut, Westpac Banking Corp. (WBC) predicts the rate will be held, while Woori CBV Securities Corp. sees a quarter of a percentage point increase.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, was unchanged at 7.56 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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.