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Indian Bonds Advance in Week on Speculation RBI Will Ease Policy

India’s government bonds completed a weekly gain on speculation slowing economic growth will prompt the central bank to ease monetary policy.

The nation needs to revive investment in public works to help counter the weakest expansion in nine years, the Reserve Bank of India said in its annual report released yesterday. Gross domestic product may rise 6.7 percent in the year that began April 1, less than the 7.6 percent gain forecast in February, Prime Minister Manmohan Singh’s economic panel said in a report last week.

“The RBI’s reference to its concern about growth is positive for bonds,” said Srinivasa Raghavan, a Mumbai-based executive vice president of treasury at Dhanalaxmi Bank. “You can expect some monetary easing sometime in the future.”

The yield on the 8.15 percent notes due June 2022 fell three basis points, or 0.03 percentage point, this week to 8.21 percent in Mumbai, according to the central bank’s trading system. The rate dropped two basis points today.

Lenders should follow State Bank of India, the nation’s largest bank that cut interest rates this month, in lowering borrowing costs to help revive investment, Finance Minister Palaniappan Chidambaram said on Aug. 18.

The central bank last cut its benchmark repurchase rate by 50 basis points to 8 percent in April. It refrained from reducing the rate at a policy review on July 31.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, was little changed this week at 7.81 percent, according to data compiled by Bloomberg. The rate fell one basis point today.

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