India 2023 Bond Yield Slips to One-Week Low Ahead of RBI Meeting

India’s 10-year bond yield slipped to a one-week low ahead of a central bank meeting to set interest rates tomorrow.

The Reserve Bank of India will maintain its key repurchase rate at 7.25 percent after lowering it three times this year, according to 31 of 32 analysts surveyed by Bloomberg. One expects a cut of 25 basis points. The monetary authority this month raised two interest rates and drained liquidity to steady the rupee, which slumped to a record low of 61.2125 a dollar on July 8. A weaker currency makes imports costlier and threatens to spur gains in consumer prices, which have climbed at an annual rate of about 10 percent for more than a year.

“Volumes in the market are pretty low” ahead of the central bank meeting, said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. (DEVB) in Mumbai. “The currency’s stability remains the key concern.”

The yield on the 7.16 percent bonds due May 2023 fell four basis points to 8.12 percent as of 10:55 a.m. in Mumbai, according to prices from the central bank’s trading system. The rate was at 8.42 percent on July 24, the highest for a 10-year benchmark bond since May 2012. The rupee fell 0.2 percent to 59.1875 per dollar, according to prices from local banks compiled by Bloomberg.

The RBI this month capped the amount banks can borrow in daily repurchase auctions at 0.5 percent of deposits, and increased the daily balance requirement for lenders’ cash-reserve ratios to 99 percent from 70 percent effective July 27. It raised the marginal standing facility and the bank rate to 10.25 percent from 8.25 percent on July 15.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, slid seven basis points to 9.25 percent, data compiled by Bloomberg show. The rate was at a five-year high of 9.50 percent on July 24.

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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