India’s Swap Rate Drops to 27-Month Low on Rate-Cut Speculation

India’s one-year interest-rate swaps touched a 27-month low on speculation cooling commodity prices and slowing economic growth will spur the central bank to reduce borrowing costs.

Brent crude oil fell 9.3 percent this month. India imports about 80 percent of its oil needs. Wholesale prices rose 5.96 percent in March, the least since November 2009 and below the central bank’s 6.8 percent projection for the month, official data showed last week. The monetary authority has lowered its repurchase rate by 50 basis points this year, and is scheduled to review policy next on May 3.

“The softening of commodity prices gives more headroom for the central bank to cut rates,” said Lakshmi Iyer, head of fixed income in Mumbai at Kotak Mahindra Asset Management Co., which oversees $6 billion.

The one-year swap, a derivative contract used to guard against fluctuations in funding costs, was steady at 7.26 percent as of 10:18 a.m. in Mumbai, according to the central bank’s trading system. The rate earlier touched 7.25 percent, the lowest level since January 2011.

The Reserve Bank of India will reduce the repo rate by 50 basis points by the end of September, Iyer predicts. India’s gross domestic product rose 5 percent in the fiscal year ended March 31, the least since 2003, the statistics agency estimates.

The yield on the 8.15 percent government bonds maturing in June 2022 rose one basis point to 7.77 percent, according to data compiled by Bloomberg. It touched 7.75 percent yesterday, the lowest level since July 2010.

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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