India’s Swap Rate Drops to 27-Month Low as Crude Eases

(Corrects proportion of oil imports in second paragraph.)

India’s one-year interest-rate swaps fell to a 27-month low on speculation that a drop in commodity prices and slowing inflation will give the central bank room to cut borrowing costs.

Brent crude has slipped 9.8 percent this month to $100.23 a barrel, which may help cut costs for a nation that imports about 80 percent of its oil requirement. Wholesale prices rose 5.96 percent in March, the slowest pace since November 2009, official data showed this week. That was below the central bank’s 6.8 percent projection for the month.

“The outlook for prices to ease further has increased with the fall in global commodity prices,” said Arvind Chari, a senior fund manager at Quantum Asset Management Co. “This should provide scope for the central bank to cut rates, and swaps are reflecting that expectation.”

The one-year swap, a derivative contract used to guard against fluctuations in funding costs, fell two basis points to 7.30 percent as of 10:30 a.m. in Mumbai, data compiled by Bloomberg show. That’s the lowest level since January 2011.

The plunge in gold in 2013 could lower import costs by almost $7 billion in the 12 months ending March 2014, according to a research note from Barclays Plc. Gold purchases account for more than two-thirds of India’s current-account deficit, according to the Reserve Bank of India.

The monetary authority last reduced the benchmark repurchase rate by 25 basis points to 7.5 percent on March 19. The next policy review is due on May 3.

The yield on the 8.15 percent government bonds maturing in June 2022 was little changed at 7.83 percent, according to the central bank’s trading system.

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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