India’s 10-year government bonds gained, pushing the yield to the lowest level in more than a month, on speculation the central bank will take more steps to increase cash supply after it resumed buying debt this week.
The Reserve Bank of India bought 116.43 billion rupees ($2.1 billion) of securities due in 2020, 2022 and 2027 at an open-market auction on Dec. 4, according to the central bank, the first purchase since June. The RBI may reduce the lenders’ cash-reserve requirement by 50 basis points in the coming months, along with a 125 basis-point cut in its benchmark repurchase rate, to spur the economy, according to Credit Suisse Group AG.
“A 3.75 percent CRR rate would be the lowest India has witnessed since 1973, reflecting the ongoing liquidity squeeze in the banking system which is also likely to encourage the RBI to undertake further sizable open-market operations,” Robert Prior-Wandesforde, a Singapore-based economist at Credit Suisse, wrote in a research note today.
The yield on the 8.15 percent notes maturing in June 2022 was at 8.17 percent in Mumbai, from 8.172 percent yesterday, according to the central bank’s trading system. That was the lowest since Oct. 29.
Gross domestic product rose 5.3 percent in the July-September quarter, government data show, matching the slowest pace since 2009.
The central bank has bought 936.43 billion rupees of securities so far in the fiscal year that began April 1 to boost the availability of funds in the financial system.
Lenders borrowed an average of 928 billion rupees a day from the RBI’s repurchase window in November, compared with 671 billion rupees the previous month, according to data compiled by Bloomberg. They borrowed 796 billion rupees yesterday.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell two basis points to 7.73 percent, data compiled by Bloomberg show.