Indian Bonds Headed for Third Weekly Gain on Rate-Cut Optimism

India’s 10-year bonds were poised for a third weekly advance on speculation the central bank will reduce interest rates as the economy is predicted to expand at the slowest pace in a decade.

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. Gross domestic product will increase by about 5.7 percent to 5.9 percent in the financial year through March, the finance ministry said in a mid-year review presented to Parliament on Dec. 17.

“The markets are pricing in the prospects of easing going forward and investors should look forward to yields remaining soft,” said N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI Bank Ltd. (IDBI) “The RBI will have to shift its balance toward growth, even as inflation, though trending down, remains high.”

The rate on the 8.15 percent bonds due June 2022 fell seven basis points, or 0.07 percentage point, this week to 7.86 percent as of 9:15 a.m. in Mumbai, according to the central bank’s trading system. It fell two basis points today to the lowest level for a benchmark 10-year security since Sept. 29, 2010.

Factory Output

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

Government data due today will show industrial output climbed 0.1 percent in November, compared with an 8.2 percent advance in October, according to a separate Bloomberg News survey. Factory production contracted in five of the first 10 months of 2012.

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. predicts the rate will be held, while Woori CBV Securities Corp. sees a quarter of a percentage point increase. The next policy review is on Jan. 29.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell three basis points to 7.57 percent, data compiled by Bloomberg show. The rate rose one basis point today.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at

To contact the editor responsible for this story: James Regan at

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