India’s 10-year bonds completed their biggest weekly gain since January on optimism slowing inflation will give the central bank room to cut interest rates.
The nation’s consumer-price index rose 4.87 percent from a year earlier in April, lower than March’s 5.25 percent gain. The Reserve Bank of India said last month that it will focus on ensuring inflation is capped at 6 percent by January 2016. The monetary authority is expected to lower borrowing costs at its next review on June 2, the Press Trust of India cited Finance Minister Arun Jaitley as saying in a report on Sunday.
“As we head toward the monetary policy meeting, expectations are building up for another rate cut,” said N.S. Venkatesh, Mumbai-based chief financial officer at IDBI Bank Ltd. Conditions are favorable for easing as inflation declines, he said.
The yield on the 8.4 percent notes due July 2024 fell nine basis points, or 0.09 percentage point, to 7.86 percent in Mumbai, prices from the RBI’s trading system show. That’s the biggest weekly decline since the period ended Jan. 16. The rate dropped two basis points Friday.
The government sold 160 billion rupees ($2.5 billion) of bonds at an auction Friday that included 90 billion rupees of new 10-year debt. The new bond maturing in 2025 was sold at 7.72 percent cut-off yield.
The rupee was little changed this week and rose 0.2 percent Friday to 63.52 a dollar, according to prices from local banks compiled by Bloomberg. It has dropped 1 percent this month.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell four basis points this week to 7.49 percent and were little changed Friday, data compiled by Bloomberg show.