Indian Rate Swaps Poised for Biggest Weekly Decline in a Month

India’s one-year interest-rate swaps headed for their biggest weekly drop in a month after central bank cash injections and on signs inflation is stabilizing.

The swaps, derivative contracts used to guard against swings in funding costs, slid six basis points, or 0.06 percentage point, this week to 8.54 percent as of 9:44 a.m. in Mumbai, data compiled by Bloomberg show. That’s the most since the week ended April 11. The rate, which rose one basis point today, touched its lowest level since January yesterday.

The Reserve Bank of India added 750 billion rupees ($12.5 billion) via term repurchase agreements on May 2 after injecting 1.41 trillion rupees in April. Gains in wholesale prices probably slowed to 5.6 percent last month from a year earlier, from 5.7 percent in March, a Bloomberg survey shows before official data due May 14.

“The liquidity situation and interest-rate environment have improved,” Nagaraj Kulkarni, a senior rates strategist at Standard Chartered Plc in Singapore, said in a phone interview yesterday. The lender doesn’t expect any increase in the RBI’s key repurchase rate this year, he said.

Consumer prices rose 8.5 percent in April from a year earlier, after increasing 8.31 percent the previous month and as much as 11.2 percent in November, according to a separate Bloomberg survey before a report due May 12.

The yield on the 8.83 percent sovereign bonds due November 2023 fell seven basis points this week and two basis points today to 8.74 percent, prices from the RBI’s trading system show. The RBI will auction 160 billion rupees of debt maturing between 2020 and 2042 today. National election results are due May 16.

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 Andrew Janes

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