India’s benchmark bonds snapped a two-day drop on speculation the central bank’s plan to purchase debt this week will ease a cash squeeze and spur demand for the securities.
The Reserve Bank of India will buy as much as 100 billion rupees ($1.9 billion) of government notes due in 2018, 2020, 2026 and 2027 on Feb. 15, it said in a statement yesterday. Lenders borrowed 1.24 trillion rupees from the monetary authority yesterday using overnight repurchase contracts, the most in more than a month, reflecting a cash shortage in the banking system.
“The resumption of bond buying is a positive,” said R.S. Chauhan, chief dealer of fixed-income and currencies at State Bank of Bikaner & Jaipur in Mumbai. “This will help overcome the cash crunch.”
The yield on the 8.15 percent notes due June 2022 fell two basis points, or 0.02 percentage point, to 7.85 percent in Mumbai, according to the central bank’s trading system.
The central bank last bought bonds on Jan. 4, taking total purchases to 1.2 trillion rupees in the financial year that began April 1, compared with 336 billion rupees in the same period a year earlier, according to data compiled by Bloomberg.
Industrial production fell 0.6 percent in December from a year earlier, after a revised 0.8 percent drop in November, a government report showed yesterday.
“Slowing growth may prompt further interest-rate cuts by the central bank,” said Chauhan.
The RBI lowered its benchmark repurchase rate by 25 basis points to 7.75 percent on Jan. 29. That was the first reduction since April.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell one basis point to 7.65 percent, according to data compiled by Bloomberg.