India’s 10-Year Bonds Advance After RBI Assurance on Cash Supply

India’s 10-year bonds advanced for a third day after the central bank said it will take steps as required to ensure adequate cash supply in the financial system.

The Reserve Bank of India is injecting about 1.5 trillion rupees ($24 billion) into markets every day via money-market operations and export-credit refinance, it said in a statement yesterday. The RBI’s pledge to support funding availability follows Governor Raghuram Rajan’s unexpected decision on Sept. 20 to raise the benchmark repurchase rate, which caused 10-year yields to surge 66 basis points in two days. Bonds pared their advance after Rajan said in Frankfurt today that India’s core inflation is certainly high.

The RBI’s assurance on cash “should be a near-term respite for Indian government bonds, while monetary policy bias and forex volatility continue to be sources of concern,” Barclays Plc analysts including Mumbai-based Siddhartha Sanyal wrote in a report dated yesterday. “After the surprise repo rate hike last week, the likelihood of RBI support to liquidity is meaningful.”

The yield on the 7.16 percent sovereign notes due May 2023 dropped seven basis points, or 0.07 percentage point, to 8.72 percent in Mumbai, after earlier falling as low as 8.67 percent, according to prices from the central bank’s trading system. The rate climbed to 8.85 percent on Sept. 23, the highest since Aug. 28.

Rajan raised the repo rate to 7.5 percent from 7.25 percent in the first increase since 2011. “We want to fight against inflation and we’ll bring inflation down,” he said Sept. 20 in his first policy review since taking over as the RBI’s governor on Sept. 4. India’s wholesale prices rose 6.1 percent in August from a year earlier, the most in six months.

One-year interest-rate swaps, a derivative contract used to guard against fluctuations in funding costs, fell three basis points to 8.80 percent, data compiled by Bloomberg show.

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