India’s 10-year bond yields were near the lowest level in two years on speculation the central bank will reduce interest rates this quarter to revive growth.
The Reserve Bank of India will lower the repurchase rate by 50 basis points to 7.5 percent by the end of March, after keeping it unchanged since April, according to 11 of 20 analysts surveyed by Bloomberg. The next policy review is on Jan. 29. The government deferred a bond auction scheduled for last week to February after reviewing its cash position, according to a finance ministry statement on Dec. 31.
“At current yields, investors have mostly factored in a 25 basis point cut in the repo rate this month,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai. “Lower supplies are also favorable for bonds.”
The yield on the 8.15 percent notes due June 2022 rose one basis point to 7.91 percent in Mumbai, according to the central bank’s trading system. The rate was at 7.90 percent yesterday, which was the lowest for a benchmark 10-year security since Dec. 28, 2010.
The government lowered its estimate for economic growth in the year through March to as little as 5.7 percent, the least in a decade, on Dec. 17. Reserve Bank Governor Duvvuri Subbarao said a day later that policy makers’ focus needs to shift toward supporting the economy from curbing inflation.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell two basis points to 7.58 percent, data compiled by Bloomberg show. Seven of the economists surveyed see a 25 basis point reduction at this month’s central bank review, while one expects no change and Woori CBV Securities Corp. predicts a quarter of a percentage point increase.