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India’s 10-Year Bonds Post Second Weekly Loss Before RBI Policy

Oct. 25 (Bloomberg) -- India’s 10-year government bonds posted a second weekly loss as economists forecast borrowing costs will be raised next week for a second time in two months.

Reserve Bank of India Governor Raghuram Rajan will raise the benchmark repurchase rate 25 basis points to 7.75 percent on Oct. 29, according to 20 of 24 analysts surveyed by Bloomberg. Rajan, who raised the rate by 25 basis points on Sept. 20, has said containing inflation is the central bank’s top priority. Wholesale prices rose 6.46 percent in September, the most in seven months, while consumer-price gains quickened to 9.84 percent, official data showed Oct. 14.

The yield on the 7.16 percent notes due May 2023 rose three basis points, or 0.03 percentage point, this week to 8.58 percent in Mumbai, according to prices from the central bank’s trading system. The rate climbed six basis points last week.

“All eyes are on the policy,” said Arvind Chari, a senior fund manager at Quantum Asset Management Co. in Mumbai. “We expect the calibration of rates to continue in this policy and the RBI will remain reasonably hawkish on inflation.”

Increased price pressures will prompt the RBI to raise the benchmark rate by 50 basis points on Oct. 29, Taimur Baig, Singapore-based director of Asia economics at Deutsche Bank AG, wrote in an Oct. 16 report. Goldman Sachs Group Inc. sees the benchmark rising to 8.5 percent by March.

Boosting Liquidity

Rajan told reporters in New Delhi yesterday the RBI will address all policy concerns in next week’s review, spurring speculation he will continue tackling inflation and the economic slowdown simultaneously.

“The two-pronged policy will continue,” Lakshmi Iyer, head of fixed income at Kotak Mahindra Asset Management Co. in Mumbai, which oversees 353 billion rupees ($5.7 billion), said in an Oct. 22 interview. Iyer expects Rajan to cut the rate at which lenders can access emergency funds under the marginal standing facility by 25 basis points on Oct. 29, while increasing the repo rate by the same amount.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, slipped four basis points this week to 8.39 percent, data compiled by Bloomberg show.

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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