Indian Bonds Complete Weekly Advance as Interest-Rate Cut SeenV. Ramakrishnan
India’s government bonds due 2022 completed their first weekly advance in almost a month on speculation the central bank will cut interest rates to revive an economy forecast to grow at the slowest pace in a decade.
Gross domestic product will increase 5 percent in the fiscal year ending March 31, compared with 6.2 percent in the previous 12 months, the Central Statistical Office said yesterday. That was less than the 5.5 percent median of 34 estimates in a Bloomberg survey. The Reserve Bank of India cut its benchmark repurchase rate on Jan. 29 for the first time since April.
“The government’s growth prediction has come in below expectations,” said Dharmakirti Joshi, chief economist at Crisil Ltd. in Mumbai. “We can expect a 25 basis point cut in rates again next month.”
The yield on the 8.15 percent bonds due June 2022 fell six basis points this week to 7.84 percent, according to the central bank’s trading system. The rate fell four basis points, or 0.04 percentage point, today.
RBI Governor Duvvuri Subbarao reduced the repurchase rate last week to 7.75 percent from 8 percent. The monetary authority also cut the cash reserve ratio to 4 percent from 4.25 percent, effective tomorrow, injecting 180 billion rupees ($3.4 billion) into the banking system.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell three basis points this week to 7.61 percent, according to data compiled by Bloomberg. The rate fell two basis points today.