India 10-Year Bond Yield Drops From One-Week High on RBI Comment

India’s 10-year bond yield fell from a one-week high after Governor Raghuram Rajan said the central bank will address all policy concerns, spurring bets it will ease cash supply further to support the economy.

The Reserve Bank of India is scheduled to review policy on Oct. 29. In the past five weeks, it cut rates at which lenders can access emergency funds from the RBI by 125 basis points to 9 percent, to make funds more easily available. Rajan, who has previously said countering inflation is his top priority, will still raise the benchmark repurchase rate 25 basis points to 7.75 percent next week, a Bloomberg survey shows.

“Markets are speculating that the upcoming policy could be pro-growth and pro-liquidity,” said Srinivasa Raghavan, Mumbai-based executive vice-president of treasury at Dhanlaxmi Bank Ltd. “While there are widespread expectations of a repo rate increase, I am expecting the central bank to hold.”

The yield on the 7.16 percent notes due May 2023 slid five basis points, or 0.05 percentage point, to 8.58 percent in Mumbai, according to prices from the central bank’s trading system. The rate reached 8.63 percent yesterday, the highest level since Oct. 15.

Three-month interbank borrowing rates have fallen to 9.54 percent from a five-year high of 11.59 percent in September after the RBI took steps to boost funding availability, data from the National Stock Exchange of India Ltd. show. Rates on similar-maturity commercial paper dropped to 9.32 percent from a peak of 12.69 percent in August, according to data compiled by Bloomberg. India’s economy expanded 4.4 percent in the quarter ended June 30 from a year earlier, the least since the first three months of 2009, government data show.

Repo Rate

Rajan, who raised the repo rate by 25 basis points last month in the first increase since 2011, spoke in New Delhi today after a meeting with Finance Minister Palaniappan Chidambaram. Wholesale prices rose 6.46 percent in September, the most in seven months, while consumer-price gains quickened to 9.84 percent, official data showed earlier this month.

Increased price pressures will prompt the RBI to raise the benchmark rate by 50 basis points on Oct. 29, Taimur Baig, Singapore-based director of Asia economics at Deutsche Bank AG, wrote in an Oct. 16 report. Goldman Sachs Group Inc. sees the benchmark rising to 8.5 percent by March.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell three basis points to 8.41 percent, data compiled by Bloomberg show.

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