India 10-Year Bonds Fall as RBI Holds Benchmark Interest Rate

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Indian sovereign bonds fell, pushing the yield to a two-week high, after the central bank held its policy rate and said it will wait for the impact of previous cuts to flow through to the economy.

The yield on government notes due May 2025 rose three basis points to 7.84 percent, the biggest increase since July 20, in Mumbai, prices from the Reserve Bank of India’s trading system show. The rupee climbed as the central bank said it’s in discussion with the government about raising foreign ownership limits on debt securities.

RBI Governor Raghuram Rajan held the benchmark repurchase rate at 7.25 percent on Tuesday, as forecast by 39 of 42 analysts surveyed by Bloomberg. The central bank has cut the rate by 75 basis points in three moves this year, most recently in June. The monetary authority will monitor the economy for room to ease policy as it waits for greater transmission of the reductions earlier in the year, Rajan said.

“I don’t think there will be any rate cuts before December,” said Sagar Shah, the vice president of treasury at RBL Bank Ltd. in Mumbai. The RBI will be watching for clarity on monsoon rains, commodity prices and the Federal Reserve outcome before it moves on rates, he said.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose two basis points to 7.46 percent, data compiled by Bloomberg show.

The rupee strengthened 0.5 percent, the biggest increase since June 18, to 63.75 a dollar, according to prices from local banks compiled by Bloomberg.

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