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India’s 10-Year Bonds Decline Before Central Bank Policy Review

Oct. 28 (Bloomberg) -- India’s 10-year government bonds dropped, pushing the yield to a two-week high before tomorrow’s monetary policy review, as economists forecast the central bank will boost borrowing costs for the 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 to tame inflation, according to 23 of 30 analysts surveyed by Bloomberg. One predicts an increase to 8 percent while six see no change. 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 this month.

The yield on the 7.16 percent notes due May 2023 climbed eight basis points, or 0.08 percentage point, to 8.66 percent in Mumbai, the highest since Oct. 15, prices from the central bank’s trading system show. It added nine basis points in the last two weeks.

“The repurchase rate is expected to be raised by 25 basis points after September CPI and WPI inflation exceeded expectations,” DBS Bank Ltd. economists including Singapore-based Radhika Rao wrote in a research note. “The October review is likely to be a follow-up to the guidance given earlier.”

Rajan, who raised the repo rate by 25 basis points on Sept. 20, has said containing inflation is his top priority. Wholesale price inflation is still above comfort level and the persistence of high consumer-price inflation remains a concern, the RBI wrote in an economic review report released after trading hours today.

“At the present juncture, monetary policy faces an unenviable task of anchoring inflation expectations, even while growth remains tepid,” the central bank said.

Increased price pressures will prompt the RBI to raise the benchmark rate by 50 basis points this month, 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.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, jumped five basis points to 8.44 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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