India’s One-Year Rate Swaps Post Biggest Weekly Drop in a Month

India’s one-year interest-rate swaps capped their biggest weekly decline in a month amid cash injections by the central bank and signs that inflation is stabilizing.

The swaps, derivative contracts used to guard against swings in funding costs, slid seven basis points, or 0.07 percentage point, this past week to 8.53 percent in Mumbai, data compiled by Bloomberg show. That’s the most since the week ended April 11. The rate, which fell one basis point today, is at its lowest level since Jan. 27.

The Reserve Bank of India added 750 billion rupees ($12.5 billion) via term repurchase agreements on May 2 after injecting 1.41 trillion rupees last month. Wholesale prices probably rose 5.7 percent in April from a year earlier, the same pace as in March, a Bloomberg survey shows before official data due May 14.

“The liquidity situation and interest-rate environment have improved,” Nagaraj Kulkarni, a senior rates strategist at Standard Chartered Plc in Singapore, said in a phone interview yesterday. The lender doesn’t expect any further increase in the RBI’s key repurchase rate this year, he said.

Consumer prices probably rose 8.5 percent in April from a year earlier, after increasing 8.31 percent the previous month and as much as 11.2 percent in November, according to a separate Bloomberg survey before a report due May 12.

The yield on the 8.83 percent sovereign bonds due November 2023 fell six basis points this past week and one basis point today to 8.75 percent, prices from the RBI’s trading system show. India sold 160 billion rupees of debt maturing between 2020 and 2042 today. National election results are due May 16 and exit poll results are likely to be published on May 12 after the close of trading.

Bonds have rallied in the past month on expectations of a stable government after the polls and as cash injections by the central bank and a strengthening rupee buoyed demand. Ten-year yields dropped to an eight-week low of 8.74 percent on May 5.

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