India’s 10-year bonds rose, pushing yields to a six-week low, after Prime Minister Manmohan Singh pledged more action to spur growth, stoking speculation policy makers will cut borrowing costs.
The Reserve Bank of India will cut its repurchase rate by 25 basis points to 7.75 percent by year-end, J. Moses Harding, executive vice president at IndusInd Bank Ltd., predicts. The central bank last lowered the benchmark by 50 basis points in April, the only decrease since 2009. Singh, who allowed overseas retailers and foreign airlines to invest in India this month, said in a prime-time speech to the nation on Sept. 21 that the government will unveil more measures to revive the economy.
“The central bank may loosen its monetary policy further in the coming months to spur the economy,” said Mumbai-based Harding. “From a strategic point of view, these are good levels to buy bonds.”
The yield on the 8.15 percent notes due June 2022 fell one basis point, or 0.01 percentage point, to 8.16 percent in Mumbai, according to the central bank’s trading system. That’s the lowest level since Aug. 9.
Asia’s third-largest economy expanded 5.5 percent in the three months through June, according to the latest government figures, compared with the 5.3 percent gain in the previous quarter that was the smallest since 2009.
“The time has come for hard decisions,” Singh said in the 15-minute speech from his office that was broadcast by state television. “We need to do more, and we will do more.”
RBI Governor Duvvuri Subbarao reduced the cash reserve ratio, or the proportion of deposits lenders must set aside as reserve, to 4.5 percent from 4.75 percent last week in the first decrease since March.
Bonds are also supported by optimism that a drop in crude oil prices will help rein in inflation, according to IndusInd’s Harding. India’s benchmark price index rose 7.55 percent last month, compared with 2 percent in China, 5.2 percent in Brazil and 5.9 percent in Russia.
Brent crude has dropped 4 percent since Aug. 31, after rising in each of the previous two months, data compiled by Bloomberg show. India imports about 80 percent of its oil.
One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell four basis points to 7.68 percent, according to data compiled by Bloomberg.