India Bond Yields Near This Month’s Low on Rate-Cut Speculation

Indian government bond yields stayed near the lowest level this month on speculation slowing economic growth and easing inflation will prompt the central bank to cut interest rates this month.

Finance Minister Palaniappan Chidambaram said last week he hopes borrowing costs will be reduced after data released Feb. 28 showed Asia’s third-largest economy grew 4.5 percent from a year earlier in the final three months of 2012, the weakest pace in almost four years. Wholesale prices rose 6.6 percent in February, the least in 39 months, according to a Bloomberg News survey before the data is published on March 14.

“The overall outlook for bonds is positive,” said Srinivasa Raghavan, the Mumbai-based executive vice president of treasury at Dhanlaxmi Bank Ltd. (DHLBK) “The central bank is expected to cut rates as growth and inflation are slowing.”

The yield on the 8.15 percent notes maturing in June 2022 was 7.84 percent, matching a level touched on March 8, according to the central bank’s trading system. That was the lowest level since Feb. 27.

The monetary authority, which reduced the repurchase rate by 25 basis points to 7.75 percent in January, will review borrowing costs next on March 19.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, was steady at 7.57 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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