India Bond Yield Near 1-Week Low on Easing Outlook; Rupee Gains

Indian bond yields held near the lowest level in a week on speculation the slowest economic growth and pace of inflation since 2009 will prompt the central bank to cut borrowing costs. The rupee gained.

Gross domestic product increased 4.8 percent in the three months through March, according to the median of 28 estimates in a Bloomberg survey before data due May 31. That compares with a 4.5 percent rise in the previous quarter, the slowest pace since 2009. Wholesale prices rose 4.89 percent in April, the least in 41 months, official data show. The Reserve Bank of India has reduced the repurchase rate by 75 basis points so far this year to 7.25 percent.

“There is little to suggest that the economy will witness a V-shaped recovery,” Radhika Rao, an economist at DBS Bank Ltd. in Singapore, wrote in a research report today. “A much weaker-than-consensus number is likely to strengthen the case for the central bank to deliver more rate cuts, especially as inflationary pressures decelerate.”

The yield on the most-frequently traded 8.15 percent government bonds June 2022 was 7.34 percent in Mumbai, according to the central bank’s trading system. That is little changed from May 24 and matches the level seen on May 20.

The rupee strengthened 0.1 percent to 55.5750 per dollar, according to data compiled by Bloomberg. It touched 56.0150 on May 23, the lowest level since Sept. 6. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 16 basis points to 8.84 percent.

Technical charts indicate the dollar is “overbought” and this may result in the rupee strengthening to around 55 against the greenback, according to Edelweiss Financial Advisors Ltd. If the dollar rises past 56.10, it could advance to 57.30, which would be near the record reached in June last year, the company said in a research report today.

Three-month onshore rupee forwards traded at 56.46 per dollar, compared with 56.52 on May 24, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 56.45 versus 56.70. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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