India’s Bonds Gain on Speculation RBI Will Cut Rates Next Week

India’s bonds advanced for a second day on speculation the slowest economic growth in a decade will spur the central bank to cut interest rates.

The Reserve Bank of India will lower the repurchase rate by 25 basis points to 7.5 percent on March 19, according to 24 of 27 economists in a Bloomberg News survey. Three expect no change. Weakening growth, the government’s adherence to its fiscal- deficit target, easing core inflation and a narrowing trade deficit will provide “enough space” for cutting rates, said Standard Chartered Plc analysts including Anubhuti Sahay.

“On the back of rate-cut expectations, we recommend that investors stay long on 10-year government bonds,” Mumbai-based Sahay wrote in a research note.

The yield on the 8.15 percent notes due June 2022 fell two basis points, or 0.02 percentage point, to 7.85 percent as of 9:44 a.m. in Mumbai, according to the central bank’s trading system. The rate rose one basis point this week.

Asia’s third-largest economy will expand 5 percent in the fiscal year ending March 31, compared with 6.2 percent in the prior 12 months, the Central Statistical Office said last month. That would be the slowest pace since 2003.

The government has “firmly embraced” fiscal responsibility, RBI Governor Duvvuri Subbarao said this week, after Finance Minister Palaniappan Chidambaram vowed on Feb. 28 to cut the budget deficit by 0.4 percentage point to 4.8 percent of gross domestic product in the year starting April 1.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell three basis points to 7.53 percent, the lowest level since Jan. 22, 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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