India’s One-Year Rate Swaps Drop to Lowest Level Since January

India’s one-year interest-rate swaps fell to the lowest level since January after the central bank injected cash and amid speculation inflation has stabilized.

The Reserve Bank of India added 750 billion rupees ($12.5 billion) to the financial system using seven- and 14-day repurchase agreements on May 2 after injecting 1.41 trillion rupees in April. Consumer prices rose 8.4 percent in April, after gaining 8.31 percent in March and as much as 11.2 percent in November, a Bloomberg survey showed before official figures due May 12. Wholesale inflation was 5.6 percent, versus 5.7 percent the previous month, according to a separate poll.

One-year swaps, derivative contracts used to guard against swings in funding costs, fell three basis points, or 0.03 percentage point, to 8.54 percent as of 10:49 a.m. in Mumbai, according to data compiled by Bloomberg. That’s the lowest level since Jan. 27. The yield on the 8.83 percent notes due November 2023 dropped three basis points to 8.77 percent in Mumbai, prices from the central bank’s trading system show.

“The central bank’s measures are supporting liquidity plus the trajectory for both consumer and wholesale inflation has probably flattened out,” said Harihar Krishnamoorthy, treasurer at the Indian unit of FirstRand Ltd. in Mumbai. “However, the monsoon situation and the budget that will be presented by the new government need to be watched.”

Monsoon rainfall in India will be below average this year, the country’s forecaster said last month, raising concern farm prices will rise faster.

Voting in the world’s largest democracy began April 7 and will end May 12, with results due May 16. The Reserve Bank of India will auction 160 billion rupees of debt maturing between 2020 and 2042 tomorrow. Industrial output data for March and consumer-inflation figures for April are due on May 12, followed by a report on wholesale prices on May 14.

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net Anil Varma, Andrew Janes

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