March 4 (Bloomberg) -- Indian bonds gained, snapping a two-day loss, on speculation the central bank will reduce interest rates this month to spur economic growth.
Asia’s third-largest economy expanded 4.5 percent in the three months ended Dec. 31 from a year earlier, the weakest pace in almost four years, according to a government statement last week. The Reserve Bank of India cut the repurchase rate by 25 basis points to 7.75 percent on Jan. 29, lowering it for the first time in nine months. Finance Minister Palaniappan Chidambaram vowed last week to cut the budget deficit by 0.4 percentage point to 4.8 percent for the year starting April 1.
“Bonds are likely to be supported by expectations of another rate cut,” said Srinivasa Raghavan, Mumbai-based executive vice president of treasury at Dhanlaxmi Bank Ltd. “Fiscal consolidation efforts and slowing growth may trigger monetary easing.”
The yield on the 8.15 percent notes due June 2022 fell two basis points, or 0.02 percentage point, to 7.89 percent in Mumbai, according to the central bank’s trading system.
The economy will expand by 6.5 percent in the coming fiscal year if the RBI lowers rates, Press Trust of India reported yesterday, citing Chidambaram. The next monetary policy review is scheduled for March 19.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell five basis points to 7.58 percent, according to data compiled by Bloomberg.
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