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India Bond Yield at 10-Week Low as RBI May Halt Rate Increases

Indian bond yields fell to a 10-week low on speculation slowing economic growth will prompt the central bank to halt interest-rate increases.

Industrial output fell 5.1 percent from a year earlier after a revised 2 percent gain in September, the Central Statistical Office said in a statement today. That’s the first decline since 2009 and compares with the median estimate for a 0.7 percent drop in a Bloomberg News survey of economists. The central bank has boosted its repurchase rate by 3.75 percentage points to 8.50 percent since the start of 2010, the most among Asia’s 10 biggest economies. The Reserve Bank of India is scheduled to review its policy rate on Dec. 16.

“There is little chance of further rate increases,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank in Mumbai. “That expectation is keeping yields lower.”

The yield on the 8.79 percent bonds due November 2021 fell nine basis points, or 0.09 percentage point, to 8.45 percent in Mumbai, according to the central bank’s trading system. That’s the lowest level for a benchmark 10-year note since September, according to Bloomberg data.

Gross domestic product rose 6.9 percent in the quarter ended Sept. 30, the least in two years, official data show.

The nation’s inflation rate has exceeded 9 percent every month this year as the rupee’s 15 percent slump against the U.S. dollar during the period, Asia’s worst performance, adds to the cost of imported goods. The local currency touched a record low of 52.84 per dollar today.

Inflation Concern

The wholesale price index rose 9.04 percent in November from a year earlier, compared with 9.73 percent a month before, according to a Bloomberg News survey of 25 economists before the data is published on Dec. 14.

“While the Governor of the RBI continues to stress that he is more concerned about inflation than growth, this is the sort of number that will surely make him sit up and take notice,” said Robert Prior-Wandesforde, a Singapore-based economist at Credit Suisse Group AG. “It would be a surprise not to see a markedly more dovish tone emerge” at the Reserve Bank of India’s next policy meeting, he said.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose one basis point to 7.77 percent, according to data compiled by Bloomberg.

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