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India’s Bond Yields Hold at Three-Year High on Rate Speculation

India’s 10-year bond yields held at a three-year high on speculation the central bank will raise interest rates tomorrow for the seventh time this year to cool inflation.

The Reserve Bank of India will lift the repurchase rate by 25 basis points to 8.50 percent tomorrow, according to 18 of 28 economists surveyed by Bloomberg. Ten predict no change. India’s challenge to contain inflation “remains significant” and this year’s weakening of the rupee has emerged as a “new source” for price pressures, the central bank said today.

“High headline and core inflation, stubborn commodity prices, the weaker rupee and looming fiscal slippage will likely influence the RBI to hike” borrowing costs, analysts at Barclays Capital, including Mumbai-based Siddhartha Sanyal, wrote in a report published today.

The yield on the 7.8 percent notes due April 2021 was little changed at 8.82 percent in Mumbai, according to the central bank’s trading system. That’s the highest closing level for rates on benchmark 10-year bonds since August 2008, according to data compiled by Bloomberg.

The wholesale-price index rose 9.72 percent in September from a year earlier after a 9.78 percent increase in August, the most since July 2010, government data show. The rupee slid more than 10 percent against the dollar this year, the worst performance among the 10 most-traded Asian currencies.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, were little changed at 8.3050 percent, according to data compiled by Bloomberg.

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