India Swaps Head for Weekly Drop on RBI Plan to Add More Cash

India’s one-year interest-rate swaps headed for the biggest five-day drop in seven weeks after the central bank said it will add cash to the financial system to help offset corporate tax payments due in March.

The Reserve Bank of India will inject funds through additional repurchase-contract auctions next month, it said in a Feb. 18 statement. Ten-year government bonds rose this week as the government projected a lower budget deficit for the next fiscal year and said this year’s shortfall will be contained within the official target.

The fixed payment to lock in borrowing costs for one year dropped seven basis points, or 0.07 percentage point, this week and one basis point today to 8.65 percent as of 10:22 a.m. in Mumbai, data compiled by Bloomberg show. The rate is the lowest level since Feb. 6.

“The central bank’s assurance on liquidity is holding the markets,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai. “Bonds have stayed range-bound and may continue to do so in the absence of fresh triggers before the elections.”

The yield on the 8.83 percent debt maturing in November 2023 fell three basis points this week and one basis point today to 8.78 percent, according to prices from the central bank’s trading system.

India’s fiscal deficit 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 target of 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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