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India Swaps Fall to Two-Week Low on RBI Plan to Inject More Cash

India’s one-year interest-rate swaps fell to a two-week low after the central bank said it will pump more cash into markets to offset quarterly corporate tax outflows due next month.

The Reserve Bank of India will inject money via additional repurchase auctions in March, it said in a statement after the close of trading on Feb. 18. Local markets were shut yesterday for a holiday. Ten-year government bonds declined, snapping a three-day advance.

The fixed payment to lock in one-year borrowing costs using swaps dropped for a fourth day, falling two basis points, or 0.02 percentage point, to 8.65 percent as of 10:29 a.m. in Mumbai, data compiled by Bloomberg show. That’s the lowest level since Feb. 6. The yield on the 8.83 percent debt maturing in November 2023 rose one basis point to 8.78 percent, according to prices from the central bank’s trading system.

“The central bank’s assurance has given some comfort to the markets,” said N. Srinivasan Venkatesh, head of treasury at IDBI Bank Ltd. in Mumbai. “Liquidity management by the RBI has been pretty efficient.”

The 10-year bond yield declined 10 basis points through the last three trading days after the government sought to reduce next year’s fiscal deficit and contain this year’s shortfall within the official target.

The gap will narrow to 4.1 percent of gross domestic product in the year ending March 2015, Finance Minister Palaniappan Chidambaram said while presenting an interim budget in New Delhi on Feb. 17 to cover spending until Prime Minister Manmohan Singh’s administration’s term ends. He estimated this year’s deficit will be 4.6 percent of GDP, compared with a targeted 4.8 percent. A full-fledged budget will be presented by the new government after elections due by May.

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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