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Indian Bonds Gain Most in 2 Months on Output Data: Mumbai Mover

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April 12 (Bloomberg) -- India’s benchmark bonds rallied the most in more than two months on speculation the central bank will lower interest rates for the first time since 2009 to support a slowing economy.

Eleven of 17 economists in a Bloomberg survey predict the repurchase rate will be cut 25 basis points to 8.25 percent at the Reserve Bank of India’s policy review on April 17. Four see no change, while two forecast a reduction of 50 basis points. Factory output rose 4.1 percent in February from a year earlier, government data showed today, less than the median estimate of economists in a separate survey for a 6.7 percent increase.

“A cut in rates is absolutely certain now,” said R.S. Chauhan, Mumbai-based chief dealer of currencies and bonds at State Bank of Bikaner & Jaipur. “Growth is increasingly becoming a concern.”

The yield on the 8.79 percent bonds due November 2021 fell 11 basis points, or 0.11 percentage point, to 8.44 percent in Mumbai, according to the central bank’s trading system. That’s the biggest decline since Feb. 1 and the lowest level since March 22.

The Reserve Bank, which raised its benchmark rate by a record 3.75 percentage points from March 2010 through October 2011, signaled readiness to lower borrowing costs to bolster growth at its last policy review on March 15.

Inflation Outlook

Cooling inflation also may allow Governor Duvvuri Subbarao to ease monetary policy. Annual gains in the benchmark wholesale-price index slowed to 6.65 percent last month from 6.95 percent in February, according to another Bloomberg survey of economists ahead of official data due April 16.

Emerging markets from Brazil to the Philippines have cut rates in recent months to support their economies as Europe’s sovereign-debt crisis dims the outlook for global trade.

India’s central bank reduced the amount lenders need to set aside as reserves by 125 basis points in 2012 to ease a cash shortage in the financial system that may threaten growth. The central bank will leave the cash reserve ratio unchanged at 4.75 percent, according to 11 of 17 economists surveyed. Three predict a cut of 25 basis points while two expect a reduction of 50 basis points.

The reserve ratio may be lowered by 75 to 100 basis points even before next week’s policy review, Morgan Stanley analysts Chetan Ahya and Upasana Chachra wrote in a note on April 10.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell two basis points to 7.97 percent, data compiled by Bloomberg show.

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