Indian Bonds Headed for Worst Week Since August on RBI Comments

Indian bonds headed for the worst week since August after central bank Governor Duvvuri Subbarao said retail inflation remains elevated and the nation’s balance of payments is under stress.

The pace of consumer-price gains held above 9 percent for 14 months through April, while a record current-account deficit contributed to a 4.8 percent slide in the rupee this month, the biggest in a year. Subbarao also said slowing economic growth is a concern for policy makers, before official data today that economists predict will show gross domestic product increased 4.8 percent in the three months through March, compared with an average 6.3 percent in the previous eight quarters.

“The governor’s comments have pushed back expectations of a rate cut in the next review on June 17,” said Arvind Sampath, Mumbai-based head of treasury at Fullerton India Credit Co., owned by a unit of Temasek Holdings Pte. “The weaker rupee is a problem as it pressures the current account and pushes inflation higher.”

The yield on the 8.15 percent government notes due June 2022 rose 12 basis points, or 0.12 percentage point, since May 24 to 7.46 percent as of 10:18 a.m. in Mumbai, according to the central bank’s trading system. That’s the first weekly increase since the period ended March 22. The rate climbed two basis points today.

The securities are still headed for the best month since they were first issued in June 2012 after the central bank lowered interest rates on May 3 for the third time this year. The shortfall in the current account, the broadest measure of trade, probably widened to a record of around 5 percent of gross domestic product, Subbarao said yesterday.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose seven basis points today and nine basis points this week to 7.19 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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