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Indian Bonds Gain as Turmoil May Prompt End to Rate Increases

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Sept. 23 (Bloomberg) -- India’s 10-year bonds completed the biggest weekly gain in almost two months on speculation the central bank will refrain from raising interest rates further amid panic in global financial markets.

Reserve Bank of India Deputy Governor Subir Gokarn said yesterday the central bank is near to ending its tightening cycle. Inflation is likely to ease because “oil prices do not appear to be going higher” and domestic growth is decelerating, Gokarn said in an interview in New York. Yields on the 10-year notes dropped to the lowest level in almost two weeks.

“Growth and inflation are expected to slow,” said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai. “The outlook for bonds is good in the medium term.”

The yield on the 7.8 percent securities due April 2021 fell six basis points, or 0.06 percentage point, this week to 8.30 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system. It was the biggest decline since the five-day period ended Aug. 5.

India’s central bank lifted its repurchase rate last week to a three-year high of 8.25 percent, the sixth increase of 2011, after a government report showed wholesale prices gained 9.78 percent in August, the most in more than a year.

Group of 20 finance chiefs pledged to address rising risks to the global economy as concern the world is headed for another recession intensified.

Governments and central banks are “committed to a strong and coordinated international response to address the renewed challenges facing the global economy,” the G-20 policy makers said in a statement released after talks in Washington.

India’s gross domestic product increased 7.7 percent last quarter from a year earlier, the smallest gain since 2009, a government report showed on Aug. 30.

“There’s no clarity about the global recovery,” Verma said. “That may influence India at some point and help halt rate increases.”

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, fell 11 basis points this week to 7.85 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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