India’s 10-Year Bonds Decline for a Fifth Day on Rupee Weakness

India’s 10-year bonds dropped for a fifth day as the rupee weakened amid speculation the U.S. Federal Reserve will cut monetary stimulus that has buoyed emerging-market assets.

The Indian currency fell for a second day following a 1.5 percent decline against the dollar in November. A weaker exchange rate stokes inflation as India imports about 80 percent of its oil. U.S. jobs and new home sales reports today may provide clues as to when the Fed will pare its $85 billion of monthly debt purchases.

The yield on the 8.83 percent bonds due November 2023 was 8.773 percent as of 9:56 a.m. in Mumbai, compared with 8.771 percent yesterday. prices from the central bank’s trading system show. The rate rose eight basis points, or 0.08 percentage point, since Nov. 27.

“Inflation is likely to stay high for some time and the rupee’s movement isn’t lending any comfort to the bond markets,” said Srinivasa Raghavan, Mumbai-based executive vice-president of treasury at Dhanlaxmi Bank Ltd. “The Fed tapering issue continues to be an overhang.”

The Federal Open Market Committee meets Dec. 17-18 to discuss policy after minutes of their last meeting in October showed officials may reduce stimulus should the U.S. economy improve as anticipated.

India’s economy grew a faster-than-estimated 4.8 percent in the third quarter from a year earlier, compared with 4.4 percent in the previous period, a report showed last week. Wholesale prices (INFINFY) rose 7 percent year-on-year in October, the fastest pace since February, a separate report showed.

Rate Review

The RBI will study data, including food prices and exchange-rate depreciation, before deciding whether to increase benchmark borrowing costs for a third straight meeting, Governor Raghuram Rajan said Nov. 13. He raised the repurchase rate by 25 basis points each in September and October, taking it to 7.75 percent. The next review is due Dec. 18, two days after the government releases wholesale-price inflation figures for November.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose one basis point to 8.43 percent, data compiled by Bloomberg show.

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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