Indian Bonds Drop on Speculation RBI Will Reduce Debt Purchases

Indian bonds fell on speculation the central bank will scale back debt purchases after a cut to lenders’ reserve requirements left them with more cash.

The government is due to sell 120 billion rupees ($2.3 billion) of notes on Feb. 8 and a further 240 billion rupees later this month, as part of the scheduled borrowing program, the Reserve Bank of India said in a statement. The RBI lowered the amount of cash banks must set aside as reserves by a quarter of a percentage point to 4 percent on Jan. 29 and said the reduction would free up 180 billion rupees in funds at banks.

“The CRR cut has diminished the possibility of open-market purchases,” said Srinivasa Raghavan, a Mumbai-based executive vice president of treasury at Dhanlaxmi Bank Ltd. “This is damping investor sentiment, particularly with large borrowings still ahead of us this month.”

The yield on the 8.15 percent bonds due June 2022 rose one basis point, or 0.01 percentage point, to 7.93 percent as of 11:10 a.m. in Mumbai, according to the central bank’s trading system.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, was little changed at 7.65 percent, according to data compiled by Bloomberg.

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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