India’s 10-year bonds completed a weekly gain on speculation the central bank will reduce the cash reserve ratio to boost availability of funds in the banking system.
Lenders borrowed an average 1.3 trillion rupees ($26.4 billion) a day from the central bank this year to meet cash shortages, data from the Reserve Bank of India show. India’s inflation slowed to the least in 26 months in January. The wholesale-price index rose 6.55 percent, compared with 7.47 percent in December, according to official data.
“Tight liquidity may prompt the central bank to cut the reserve requirement for lenders next month,” said N.S. Venkatesh, the Mumbai-based head of treasury at state-owned IDBI Bank Ltd. “Since inflation is easing, a reduction in interest rates may also be in the offing.”
The yield on the 8.79 percent notes due November 2021 fell two basis points, or 0.02 percentage point, this week to 8.19 percent in Mumbai, according to the central bank’s trading system. Financial markets in India will remain shut on Feb. 20 for a local holiday.
The Reserve Bank reduced the amount of deposits lenders need to set aside as reserves to 5.5 percent from 6 percent on Jan. 24, the first cut since 2009.
The finance ministry sold 120 billion rupees of government bonds due in 2018, 2021 and 2041 today.
The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell three basis points this week to 8.10 percent, according to data compiled by Bloomberg.