India’s Bonds Gain a Fourth Day After Ministry Signals Rate Cut

India’s bonds advanced for a fourth day, the longest winning streak in six weeks, after the finance ministry signaled the central bank will reduce interest rates next month to bolster growth.

A reversal in interest rates is important as the nation is “looking for higher growth,” R. Gopalan, economic affairs secretary, said in a Bloomberg TV interview yesterday. The Reserve Bank of India, which has boosted the repurchase rate 13 times in the last two years to cool inflation, is scheduled to review borrowing costs on April 17.

“Expectations of a reduction in rates is spurring demand for debt,” said N.S. Venkatesh, head of treasury at state-owned IDBI Bank Ltd. in Mumbai. “The RBI may act now as growth is slowing.”

The yield on the 8.79 percent bonds due November 2021 fell one basis point, or 0.01 percentage point, to 8.38 percent in Mumbai, according to the central bank’s trading system. It touched 8.43 percent on March 16, this year’s highest level.

Wholesale-price gains averaged 6.75 percent in the first two months of this year, compared with 9.5 percent in the whole of 2011, government data show.

“If inflation remains at this level after factoring in various things, then an interest-rate reversal may start in April,” said Gopalan, who forecast an inflation rate of 6.5 percent to 6.7 percent for the fiscal year starting April 1, 2012. Gross domestic product will increase 6.9 percent in the year ending March 31, Finance Minister Pranab Mukherjee said on March 16. That would be the slowest pace in three years.

Containing inflation remains a policy priority for the Reserve Bank as higher oil prices and a weaker rupee threaten to spur consumer prices, Deputy Governor Subir Gokarn said in an interview with Bloomberg Television in Hong Kong. Crude oil in New York has gained more than 7 percent this year. The rupee fell below 51 per dollar today for the first time since January.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell seven basis points to 8.11 percent, data compiled by Bloomberg show.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE