India Bonds Post Weekly Gain as Slowing Growth Adds to Cut Bets

  • Rupee completes longest run of weekly declines since November
  • Economic expansion slowed in April-June quarter, data showed

India’s 10-year sovereign bonds posted a weekly gain on speculation slowing economic growth increases the chances of an interest-rate cut at this month’s central bank meeting.

Asia’s third-largest economy expanded 7 percent last quarter, compared with 7.5 percent growth in the three months ended March 31, official data showed this week. That was lower than the median estimate of 7.4 percent in a Bloomberg survey of economists. Gains in consumer prices eased to an eight-month low of 3.78 percent in July, below the Reserve Bank of India’s target of 6 percent inflation by January. The RBI next reviews policy on Sept. 29.

“Every incoming data is adding to hopes of another rate cut,” said Soumyajit Niyogi, an interest-rate strategist at SBI DFHI Ltd. in Mumbai. “Nobody is willing to stay out of the market now.”

The yield on the notes due May 2025 fell two basis points from Aug. 28 to 7.75 percent in Mumbai on Friday, according to prices from the central bank’s trading system. That’s the biggest weekly drop since mid-August. The yield was steady on Friday.

RBI Governor Raghuram Rajan has lowered the repurchase rate by 75 basis points this year to 7.25 percent, with the last move in June. Eleven of 21 economists in a Bloomberg survey published Aug. 25 expected the benchmark to be reduced to 7 percent by the end of this month, while the rest predicted no change. In July, just 5 out of 25 predicted a cut this quarter.

One-year interest-rate swaps, the fixed payment to lock in borrowing costs, have retreated 11 basis points to 7.26 percent since the inflation data were released on Aug. 12.

The rupee weakened 0.5 percent this past week and 0.3 percent on Friday to 66.4650 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The currency completed a fourth week of decline, the longest run of losses since November. It has retreated 5.1 percent in 2015.

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