Indian bonds completed the biggest weekly gain in 11 months on speculation slowing inflation will give the central bank room to add to three interest-rate cuts this year.
The wholesale-price index rose 4.89 percent in April, the least in 41 months, the government reported this week. The Reserve Bank of India has lowered the repurchase rate by 75 basis points this year to 7.25 percent to revive economic growth. The next policy review is due June 17.
“Bonds are rallying as investors are factoring in more rate cuts after inflation eased dramatically,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai.
The yield on the 8.15 percent notes due June 2022 fell 18 basis points, or 0.18 percentage point, this week to 7.41 percent in Mumbai, according to the central bank’s trading system. The rate rose two basis points today.
The benchmark bonds gave up earlier gains today after Standard & Poor’s reiterated there was at least one in three chance of lowering India’s ratings in the next 12 months.
Slowing inflation gives the RBI more room to operate, Chakravarthy Rangarajan, chairman of Prime Minister Manmohan Singh’s economic advisory council, said in an interview to Bloomberg TV India today.
The nation’s gross domestic product rose 5 percent in the fiscal year ended March 31, the weakest pace since 2003, the statistics agency estimates.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell 10 basis points this week to 7.10 percent, according to data compiled by Bloomberg. The rate rose one basis point today.