Indian Bonds Complete Third Weekly Advance on Easing Speculation

India’s bonds completed a third weekly gain on speculation the central bank will ease monetary policy to revive Asia’s third-largest economy.

Factory output rose 2.4 percent in May from a year earlier, government data showed last week, compared with an average gain of 5.1 percent in the previous two years. The $1.7 trillion economy expanded 5.3 percent in the first quarter, the least since 2003. Inflation held above 7 percent in June for the fifth straight month, official figures show.

“With growth stuttering, rate cuts are just a question of time,” said N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI Bank Ltd. “The central bank would like to see some softening in inflation before easing policy further.”

The yield on the 8.15 percent notes due June 2022 fell two basis points, or 0.02 percentage point, this week to 8.08 percent in Mumbai, according to the central bank’s trading system. It fell one basis point today. The 10-year yield touched 8.05 percent on July 16, the lowest level since June 15.

The Society of Indian Automobile Manufacturers this month cut its annual forecast for growth in car sales to a range of 9 percent to 11 percent in the year through March 2013, from an estimate of 10 percent to 12 percent given in April.

The Reserve Bank of India cut the repurchase rate by 50 basis points to 8 percent in April, after raising it by a record 375 basis points through 2010 and 2011. Governor Duvvuri Subbarao held the repo rate at 8 percent at a meeting on June 18. The next policy review is scheduled for July 31.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, was little changed this week at 7.63 percent, according to data compiled by Bloomberg. The rate fell four basis points today.

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