India’s 10-Year Bonds Decline Before Central Bank Policy Review

India’s 10-year government bonds dropped, snapping a two-day gain, as economists forecast the central bank will boost borrowing costs this 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 at a review tomorrow to tame inflation, according to 20 of 24 analysts surveyed by Bloomberg. One predicts an increase to 8 percent while three see no change. Wholesale prices rose 6.46 percent in September, the most in seven months, while consumer-price gains quickened to 9.84 percent, official data show.

The yield on the 7.16 percent notes due May 2023 rose two basis points, or 0.02 percentage point, to 8.60 percent as of 9:52 a.m. in Mumbai, prices from the central bank’s trading system show. It added nine basis points in the last two weeks.

“The repurchase rate is expected to be raised by 25 basis points after September CPI and WPI inflation exceeded expectations,” DBS Bank Ltd. economists including Singapore-based Radhika Rao wrote in a research note. “The October review is likely to be a follow-up to the guidance given earlier.”

Rajan, who raised the repo rate by 25 basis points on Sept. 20, has said containing inflation is his top priority. Increased price pressures will prompt the RBI to raise the benchmark rate by 50 basis points this month, 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.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, was unchanged at 8.39 percent, data compiled by Bloomberg show. It declined four basis points last week.

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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