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Indian Bonds Advance as Chidambaram Favors Lower Interest Rates

Indian bonds gained for a second day after Finance Minister Palaniappan Chidambaram said yesterday he hopes interest rates will be cut.

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. The next policy review is due on March 19. The economy expanded 4.5 percent from a year earlier in the final three months of 2012, the weakest pace in almost four years, the government reported last week.

“Bonds are recovering after last week’s fall on expectations of further monetary easing,” said Vaidyanathan Iyer, Mumbai-based executive director at AK Capital Services Ltd. “The central bank may cut rates by 25 basis points this month to revive growth.”

The yield on the 8.15 percent notes due June 2022 fell two basis points, or 0.02 percentage point, to 7.87 percent in Mumbai, according to the central bank’s trading system.

Last week, the 10-year yield rose 11 basis points, the most since August, after Chidambaram unveiled plans to boost debt sales by 13 percent to 6.29 trillion rupees ($115 billion) in the fiscal year starting April 1.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell one basis point to 7.57 percent, according to data compiled by Bloomberg.

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