India’s 10-year bonds completed their biggest weekly decline since mid-March after the central bank signaled it will be patient before cutting interest rates again.
The Reserve Bank of India kept its benchmark repurchase rate at 7.50 percent Tuesday and said it will wait for lenders to pass on its previous cuts and pay attention to consumer prices before easing policy further. Only about eight of India’s 47 banks have heeded Governor Raghuram Rajan’s call to lower lending costs. None has matched the RBI’s 50 basis-point reduction in the key policy rate this year. The rupee posted the biggest gain in three weeks.
“The RBI statement tried to anchor expectations of a prolonged rate-easing cycle,” said Soumyajit Niyogi, a Mumbai-based interest-rate analyst at primary dealer SBI DFHI Ltd. “The governor set multiple conditions to be fulfilled before easing further” and the scope for larger rate cuts appears limited, he said.
The yield on government notes due July 2024 climbed six basis points, or 0.06 percentage point, this week to 7.80 percent in Mumbai, the biggest increase since the five days ended March 13, prices from the RBI’s trading system show. It gained three basis points on Friday.
The rupee rose 0.3 percent this week to 62.32 a dollar to complete the best weekly advance since March 20, according to prices from local banks compiled by Bloomberg. The currency fell 0.1 percent on Friday.
Indian banks have been slow to respond to calls to cut lending rates, citing surging bad loans and sliding profits.
Consumer-price gains will moderate to 4 percent by August before climbing to 5.8 percent by March 2016, the RBI said in its policy review. Inflation has averaged 5.3 percent this year.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose nine basis points this week to 7.59 percent, data compiled by Bloomberg show.