India’s Bonds Decline in Longest Run of Losses in Three Months

India’s bonds fell for a third day, the longest losing streak since December, on speculation faster inflation will limit the extent to which interest rates can be cut this year.

The consumer price index rose 10.91 percent in February from a year earlier, compared with 10.79 percent in January, data showed yesterday. Reserve Bank of India Governor Duvvuri Subbarao signaled last month inflation risks will affect how much he can cut borrowing costs. Industrial output climbed in January by more than economists surveyed by Bloomberg forecast, another report showed yesterday.

“Growth seems to have bottomed out, while inflation is still rising,” said Indranil Pan, Mumbai-based chief economist at Kotak Mahindra Bank Ltd. (KMB) “This may restrict the RBI at best to a 50 basis point cut in rates this year, compared to our earlier forecast of 75 basis points.”

The yield on the 8.15 percent bonds maturing in June 2022 rose two basis points, or 0.02 percentage point, to 7.90 percent in Mumbai, according to the central bank’s trading system. The rate is at the highest level since March 1.

The RBI, which last cut the repurchase rate by 25 basis points to 7.75 percent in January, will review monetary policy on March 19.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell one basis point to 7.59 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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