Indian Swap Rates Fall to Six-Month Low as Monetary Easing Seen

India’s one-year swap rate fell to the lowest level since July and government bonds advanced on speculation the central bank will reduce borrowing costs.

The Reserve Bank of India will lower the repurchase rate by 50 basis points to 7.5 percent by the end of March, after keeping it unchanged since April, according to 11 of 21 analysts surveyed by Bloomberg. The next policy review is on Jan. 29. Government data due Jan. 11 will show industrial output rose 0.2 percent in November, compared with an 8.2 percent increase in October, according to a separate Bloomberg News survey.

“Investors are pricing in a 25 basis point cut in the repo rate,” said Paresh Nayar, head of money-markets and currency at FirstRand Ltd. in Mumbai. “The central bank may act to tackle growth concerns.”

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell two basis points to 7.56 percent as in Mumbai, data compiled by Bloomberg show. That was the lowest level since July 16.

At the last rate review on Dec. 18, Reserve Bank Governor Duvvuri Subbarao said policy makers’ focus needs to shift toward supporting the economy from curbing inflation.

Seven of the economists surveyed on the repurchase rate see a 25 basis point reduction by the end of this quarter. Of the remaining three, UBS AG expects a 100 basis point cut, Westpac Banking Corp. predicts the rate will be held, while Woori CBV Securities Corp. sees a quarter of a percentage point increase.

The yield on the 8.15 percent bonds due June 2022 fell one basis point, or 0.01 percentage point, to 7.90 percent in Mumbai, according to the central bank’s trading system. That matched the level on Jan. 7, which was the lowest for a benchmark 10-year security since Dec. 28, 2010.

India has some room to lower interest rates as inflation eases, a central bank adviser said today.

“They have some room to cut rates,” Ashima Goyal, a member of the Reserve Bank of India’s technical advisory committee, which makes recommendations to Subbarao, said in an interview. “They won’t be very aggressive.”

The wholesale price index rose 7.24 percent in November, according to official data, the slowest pace in 10 months.

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