India’s government bonds due 2023 rose, pushing the yield toward an eight-month low, after inflation slowed more than economists projected.
Consumer prices climbed 8.28 percent in May from a year earlier, compared with 8.59 percent in April, official data showed after the close of markets yesterday. The median of 40 estimates in a Bloomberg News survey was for an 8.4 percent gain. A separate report showed factory output rose 3.4 percent in April, versus the 1.9 percent predicted. The Reserve Bank of India will conduct a 14-day term repurchase auction for 610 billion rupees ($10.3 billion) today.
The yield on the 8.83 percent notes due November 2023 fell two basis points, or 0.02 percentage point, to 8.53 percent as of 9:21 a.m. in Mumbai, according to prices from the RBI’s trading system. The rate, which climbed one basis point this week, reached 8.51 percent on June 6, the lowest for a benchmark 10-year bond since October.
“We expect the RBI to defer further rate hikes, but are unlikely to reduce rates as well,” Radhika Rao, an economist at DBS Bank Ltd. in Singapore, wrote in a research note today. “The strength of the south-west monsoon and next month’s budget will be important variables for monetary policy.”
RBI Governor Raghuram Rajan, who has raised the benchmark repurchase rate by 75 basis points since taking charge in September to rein in prices, left it unchanged at 8 percent for a second straight meeting on June 3.
Ten-year notes rallied last week, with the yield slumping 13 basis points to 8.51 percent, after the central bank said it could ease monetary policy should inflation slow more than anticipated. The RBI aims to curb consumer-price gains to 8 percent by January 2015 and 6 percent a year later.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell two basis points to 8.22 percent, data compiled by Bloomberg show. They rose six basis points this week after reaching 8.16 percent on June 6, the lowest level since July 2013.