India’s One-Year Swaps at One-Month Low on Cash Supply Optimism

India’s one-year interest-rate swaps slumped to the lowest level in a month on speculation cash supply in the banking system is improving. Bonds rose.

Lenders’ overnight borrowings under the central bank’s marginal standing facility dropped to an average 7.6 billion rupees ($122 million) in the first four days of last week, half of the 15 billion rupee average for all of the previous week, official figures show. India’s economy grew a faster-than-estimated 4.8 percent from a year earlier in the quarter ended Sept. 30, compared with 4.4 percent in the previous period, a report showed Nov. 29 after the markets closed.

The fixed payment to lock in one-year borrowing costs fell four basis points, or 0.04 percentage point, to 8.41 percent as of 9:59 a.m. in Mumbai, the lowest level since Nov. 1, data compiled by Bloomberg show. The derivative contracts, which are used to guard against fluctuations in funding costs, dropped for a seventh day.

“The fear of liquidity tightening isn’t there any more and things are much more comfortable,” said Paresh Nayar, head of currency and money markets at FirstRand Ltd. in Mumbai. “With GDP numbers out of the way, investors and the central bank will now wait to see what the inflation data shows.”

The yield on the 8.83 percent bonds maturing in November 2023 slipped two basis points to 8.72 percent, according to prices from the central bank’s trading system.

The Reserve Bank of India will study data, including food prices and exchange-rate depreciation, before deciding whether to increase the benchmark interest rate for a third straight meeting, Governor Raghuram Rajan said Nov. 13. He raised the repurchase rate by 25 basis points to 7.75 percent on Oct. 29 to curb inflation. The next meeting is scheduled for Dec. 18.

Wholesale prices rose 7 percent in October from a year earlier, the fastest pace since February, according to the latest government data.

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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