India Bonds Drop Most This Month as Cash Ratio Left Unchanged

India’s 10-year bonds fell by the most this month as the central bank refrained from easing monetary policy after 20 of 24 economists had forecast a cut in the cash-reserve requirement ratio for lenders.

The Reserve Bank of India kept the benchmark repurchase rate at 8 percent for a fifth straight meeting after lowering it by 50 basis points this year and cutting the amount of money banks must set aside by 175 basis points basis points. Policy makers will continue to pump funds into the economy by buying back government debt, said Srinivasa Raghavan, a Mumbai-based executive vice president of treasury at Dhanlaxmi Bank Ltd.

“Investors are slightly disappointed as there was no CRR or repo-rate cut,” said Mumbai-based Raghavan. “Yields will however be in a range around current levels in anticipation of more open-market purchases.”

The yield on the 8.15 percent notes due June 2022 rose one basis point, or 0.01 percentage point, to 8.15 percent in Mumbai, according to the central bank’s trading system. It touched 8.14 percent earlier, the lowest level since Oct. 29. The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, climbed three basis points to 7.66 percent, data compiled by Bloomberg show.

Indian bonds returned 10.1 percent this year, the best performance in Asia after Indonesia, according to indexes compiled by HSBC Holdings Plc.

Twenty-five of 27 economists surveyed by Bloomberg had predicted the repo rate would be kept unchanged, while two expected a cut.

The central bank has bought 1.1 trillion rupees ($20.5 billion) of government securities this fiscal year that started April 1. Lenders borrowed 1.517 trillion rupees from the RBI’s overnight repurchase window today, the most since March, indicating a cash squeeze in the financial system.

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