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India 2023 Bonds Gain as Foreign Funds Buy Ahead of RBI Meeting

July 29 (Bloomberg) -- India’s 10-year bonds rose, pushing the yield to a one-week low, as foreign funds bought local debt ahead of a central bank meeting to set interest rates tomorrow.

Overseas funds bought a net $131 million of Indian bonds on July 25 and July 26, the biggest two-day purchase since May, according to data from the capital markets regulator. The Reserve Bank of India will maintain its key repurchase rate at 7.25 percent after lowering it three times this year, according to 31 of 32 analysts surveyed by Bloomberg. One expects a cut of 25 basis points. Steadying the rupee has become the priority for monetary policy, the RBI said today.

“Foreigners turning net buyers again has helped improved sentiment a bit,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai. “Still, volumes in the market are pretty low ahead of the RBI meeting and the currency’s stability remains a key concern.”

The yield on the 7.16 percent bonds due May 2023 fell three basis points to 8.13 percent in Mumbai, according to prices from the central bank’s trading system. The rate, which has surged 68 basis points in July, was at 8.42 percent on July 24, the highest for a 10-year benchmark bond since May 2012.

The rupee weakened 0.6 percent to 59.4175 per dollar, according to prices from local banks compiled by Bloomberg. The RBI this month raised two interest rates and drained liquidity to steady the currency, which sank to a record low of 61.2125 a dollar on July 8. A weaker rupee makes imports costlier and threatens to spur gains in consumer prices, which have climbed at an annual rate of about 10 percent for more than a year.

The central bank capped the amount banks can borrow in daily repurchase auctions at 0.5 percent of deposits, and increased the daily balance requirement for lenders’ cash-reserve ratios to 99 percent from 70 percent effective July 27. It raised the marginal standing facility and the bank rate to 10.25 percent from 8.25 percent on July 15.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, slid six basis points to 9.26 percent, data compiled by Bloomberg show. The rate was at a five-year high of 9.50 percent on July 24.

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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