India’s Swap Rate at Two-Year Low on Rate-Cut Speculation

India’s one-year interest-rate swaps were at a two-year low on speculation slowing economic growth will spur the central bank to lower borrowing costs.

The contracts fell five basis points this week after a report released April 1 showed manufacturing growth slowed to a 16-month low in March. Asia’s third-largest economy probably expanded 5 percent in the year ended March 31, which would be the least since 2003, the Central Statistical Office predicted in February. The Reserve Bank of India has cut the repurchase rate by 50 basis points to 7.5 percent in 2013.

“More rate cuts are expected this year as growth continues to be a concern,” said R.S. Chauhan, chief dealer of fixed-income and currencies at State Bank of Bikaner & Jaipur in Mumbai. “Swaps are signaling this expectation.”

The one-year swap, a derivative contract used to guard against fluctuations in funding costs, was unchanged at 7.4250 in Mumbai, data compiled by Bloomberg show. The rate matched the level touched yesterday, which was the lowest since April 4, 2011.

The Purchasing Managers’ Index fell to 52 from 54.2 in February, according to a report published by HSBC Holdings Plc and Markit Economics on April 1. Fifty is the dividing line between expansion and contraction.

The yield on the 8.15 percent government bonds due June 2022 fell two basis points, or 0.02 percentage point, was little changed at 7.96 percent, according to the central bank’s trading system.

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