India’s 2022 Bonds Advance a Fourth Day on Rate-Cut Speculation

India’s government bonds rallied for a fourth day, the longest winning streak in two months, on speculation slowing economic growth will prompt the central bank to cut interest rates. The rupee strengthened.

The yield on the notes due 2022 reached the lowest level in almost three weeks after a purchasing managers’ index released April 1 showed manufacturing growth fell to a 16-month low in March. The Reserve Bank of India reduced the repurchase rate by 25 basis points each in January and March, and the next review is due on May 3.

“Growth worries are persisting and that could lead to more rate cuts,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. (DEVB) in Mumbai. An increase in cash availability at lenders is also spurring purchases, he said.

The yield on the 8.15 percent bonds due June 2022 fell two basis points, or 0.02 percentage point, to 7.91 percent as of 10:02 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, dropped two basis points to 7.42 percent, data compiled by Bloomberg show.

Lenders borrowed an average of 560 billion rupees ($10.2 billion) a day from the central bank in the three days through April 5, lower than 957 billion rupees a day in March, according to data compiled by Bloomberg.

The rupee advanced a second day after Raghuram Rajan, the chief economic adviser in India’s Finance Ministry, said on April 6 the current-account deficit was probably “significantly” narrower in the first quarter as overseas sales recovered. The shortfall reached a record $32.6 billion in the three months through December, official data show.

Rupee Strengthens

The rupee strengthened 0.2 percent to 54.68 per dollar, according to data compiled by Bloomberg. It has weakened 6.5 percent against the dollar in the past year, with only Japan’s yen declining more among the 11 most-traded Asian currencies. Commerzbank AG, the most accurate forecaster for the rupee in the last four quarters, predicts a 9.4 percent gain to 50 by year-end as lower interest rates help revive the economy.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell one basis point to 7.82 percent.

Three-month onshore rupee forwards traded at 55.78 per dollar, compared with 55.93 at the end of last week, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.71 versus 55.75. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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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