Indian Bonds Completes Third Weekly Gain on Rate-Cut Optimism

India’s 10-year bonds completed a third weekly advance on speculation the central bank will reduce interest rates as the economy is predicted to expand at the slowest pace in a decade.

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 20 analysts surveyed by Bloomberg. Gross domestic product will increase by about 5.7 percent to 5.9 percent in the financial year through March, the finance ministry said in a mid-year review presented to Parliament on Dec. 17.

“The markets are pricing in the prospects of easing going forward and investors should look forward to yields remaining soft,” said N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI Bank Ltd. “The RBI will have to shift its balance toward growth, even as inflation, though trending down, remains high.”

The rate on the 8.15 percent bonds due June 2022 fell six basis points, or 0.06 percentage point, this week to 7.87 percent in Mumbai, according to the central bank’s trading system. It fell one basis point today to the lowest level for a benchmark 10-year security since September 2010.

Factory Output

Wholesale prices probably rose 7.37 percent in December from a year earlier, according to a Bloomberg survey before the figures are published on Jan. 14. Costs increased 7.24 percent in November, the slowest pace in 10 months, official data show.

Industrial output fell 0.1 percent in November from a year earlier, government data showed today. Factory production contracted in six of the first 11 months of 2012.

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 next policy review is on Jan. 29.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell six basis points this week to 7.54 percent, data compiled by Bloomberg show. The rate fell two basis points today.

Before it's here, it's on the Bloomberg Terminal.