India’s 10-Year Bonds Head for Weekly Loss Before RBI Policy

India’s 10-year government bonds headed for a weekly loss as economists forecast borrowing costs will be increased next week for the second time in two months.

Reserve Bank of India Governor Raghuram Rajan will raise the benchmark repurchase rate 25 basis points to 7.75 percent on Oct. 29, according to 19 of 23 analysts surveyed by Bloomberg. Rajan has said containing inflation is the central bank’s top priority. Wholesale prices rose 6.46 percent in September, the most in seven months, while consumer-price gains quickened to 9.84 percent, official data showed Oct. 14.

The yield on the 7.16 percent notes due May 2023 rose four basis points, or 0.04 percentage point, this week to 8.59 percent as of 9:54 a.m. in Mumbai, according to prices from the central bank’s trading system. The rate was steady today.

“All eyes are on the policy,” said Arvind Chari, a senior fund manager at Quantum Asset Management Co. in Mumbai. “We expect the calibration of rates to continue in this policy and the central bank will remain reasonably hawkish on inflation.”

Increased price pressures will prompt the RBI to raise the benchmark rate by 50 basis points on Oct. 29, Taimur Baig, Singapore-based director of Asia economics at Deutsche Bank AG, wrote in an Oct. 16 report. Goldman Sachs Group Inc. sees the benchmark rising to 8.5 percent by March.

Boosting Liquidity

Rajan told reporters in New Delhi yesterday the RBI will address all policy concerns in next week’s review, spurring speculation he will continue tackling inflation and the economic slowdown simultaneously.

“The two-pronged policy will continue,” Lakshmi Iyer, head of fixed income at Kotak Mahindra Asset Management Co. in Mumbai, which oversees 353 billion rupees ($5.7 billion), said in an Oct. 22 interview. Iyer expects Rajan to cut the rate at which lenders can access emergency funds under the marginal standing facility by 25 basis points on Oct. 29, while increasing the repo rate by the same amount.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, slipped two basis points this week to 8.42 percent, data compiled by Bloomberg show. It rose one basis point today.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.