India’s 10-Year Government Bonds Decline for a Second Day

India’s 10-year bonds fell, reversing early gains, after Reserve Bank of India Governor Raghuram Rajan said the central bank isn’t done with raising interest rates.

The RBI needs data clarity before taking further rate action and nobody should doubt its desire to fight inflation, Rajan said today in an interview to the ET Now television channel. The RBI left borrowing costs unchanged at a meeting last week, adding that the decision was “a close one” after official data showed wholesale prices climbed 7.52 percent in November from a year earlier, the fastest since September 2012.

“There is a lack of buying support given the uncertainty in terms of the policy outlook,” Srinivasa Raghavan, Mumbai-based executive vice-president of treasury at Dhanlaxmi Bank Ltd., said by telephone. “Rajan’s comments too certainly didn’t help the markets today.”

The yield on India’s 8.83 percent sovereign notes due November 2023 rose two basis points, or 0.02 percentage point, to 8.82 percent in Mumbai, according to the central bank’s trading system. The rate dropped as low as 8.76 percent intraday as the Press Trust of India quoted Chakravarthy Rangarajan, chairman of Prime Minister Manmohan Singh’s Economic Advisory Council, as saying that wholesale inflation may ease to 6.5 percent in December.

Rajan kept the repurchase rate at 7.75 percent on Dec. 18, an outcome predicted by only five of 31 participants in a Bloomberg survey. The rest saw an increase to 8 percent. He had boosted the rate by 25 basis points in each of the two previous reviews since he took office Sept. 4.

Indications that vegetable prices may fall combined with a more stable exchange rate and lag effects from the previous rate increases give reason to hold the rate even though inflation is “too high,” the central bank said in its policy statement. Consumer prices climbed 11.24 percent in November, the most in data compiled by Bloomberg going back to January 2012.

India’s one-year interest-rate swap, a derivative contract used to guard against swings in funding costs, jumped four basis points to 8.47 percent, data compiled by Bloomberg show.

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