India Bonds Snap Four-Day Loss as Fitch Amends Outlook to Stable

Indian government bonds rose, snapping a four-day decline, after Fitch Ratings revised the nation’s outlook to stable from negative.

Fitch cited steps taken by the government to contain the budget deficit and and “some, albeit limited, progress in addressing some of the structural impediments to investment and economic growth.” The long-term foreign and local currency ratings were affirmed at BBB-, the lowest investment grade, Fitch said in a statement today. It cut the outlook to negative in June 2012.

“The revision is an acknowledgment of the efforts taken by the government to consolidate its finances,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. “Bonds have reacted to this positive development.”

The yield on the benchmark 8.15 percent notes due June 2022 fell three basis points, or 0.03 percentage point, to 7.51 percent in Mumbai, according to the central bank’s trading system.

Finance Minister Palaniappan Chidambaram is targeting to reduce the budget deficit to 4.8 percent of gross domestic product in the year that began April 1 from 4.9 percent last fiscal year.

Singh’s administration began unveiling policies to revive growth and improve public finances in September after Fitch and Standard & Poor’s warned the nation’s credit ratings may be downgraded to junk. The government reduced energy subsidies, allowed more overseas investment in aviation and retail, lowered levies on overseas buyers of local bonds and raised import duty on gold.

Borrowing Costs

Earlier, bonds dropped, sending yields to a one-month high, on speculation the central bank will refrain from cutting borrowing costs next week after consumer prices rose faster than estimated.

The Reserve Bank of India will keep the benchmark repurchase rate at 7.25 percent at a July 17 policy review, 11 of 19 analysts said in a Bloomberg News survey. The rest predict a reduction to 7 percent. The Consumer Price Index rose 9.31 percent in May from a year earlier, the Central Statistics Office said in a statement today, more than the 9 percent estimated in a separate Bloomberg survey.

The one-year interest-rate swap, a derivatives contract used to guard against fluctuations in funding costs, rose four basis points to 7.29 percent, according to data compiled by Bloomberg.

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