India’s 10-year sovereign bonds fell for a second day as global funds pared holdings of local debt and on speculation a slump in the rupee will limit the central bank’s scope to cut interest rates.
Overseas investors sold a net $313.3 million of Indian government and corporate bonds on May 12, the sixth day of outflows, the latest figures show. That’s taken withdrawals for this month to $1.3 billion. The rupee’s vulnerability to external uncertainties and the prospect of weak monsoon rains will restrict room for monetary easing, Kotak Mahindra Bank Ltd. economists wrote in a report, even as data Tuesday showed retail inflation slowed in April.
The yield on the 8.4 percent notes due July 2024 rose one basis points, or 0.01 percentage point, to 7.96 percent in Mumbai, prices from the Reserve Bank of India’s trading system show. It rose six basis points on Tuesday.
India missed its target to sell treasury bills at Wednesday’s weekly auction for the first time since February on speculation the central bank rejected bids after local yields surged amid a global selloff in bonds.
The rupee advanced 0.3 percent to steady at 64.01 a dollar. The currency sank to 64.28 on May 7, the weakest since September 2013.
“Foreigners are reducing holdings amid a global selloff in bonds and as expectations of rate cuts seem to be waning,” said Anoop Verma, Mumbai-based vice president at DCB Bank Ltd. “The currency’s weakness has made matters worse for India.”
The rupee was Asia’s worst performer in April, losing 1.5 percent, and losses have deepened in May, typically the cruelest month for the currency. HSBC Holdings Plc forecasts the rupee will retreat to 66 per dollar by the end of 2015.
Consumer prices rose 4.87 percent from a year earlier, after a revised 5.25 percent increase in March, a report showed after the close of markets Tuesday. The central bank has lowered its benchmark repurchase rate by 50 basis points to 7.50 percent in 2015. It next reviews monetary policy on June 2.
“We expect the RBI to deliver a final 25-basis point repo rate cut in June,” Nomura Holdings Inc. economists wrote in a report. “Much of the disinflation is behind us.”