India’s 2023 Bonds Drop for a Second Day as Monsoon Seen Weaker

India’s government bonds due 2023 fell for a second day on speculation below normal monsoon rainfall will fuel inflation.

Monsoons, the main source of irrigation for the nation’s 263 million farmers, will be 93 percent of a 50-year average of 89 centimeters (35 inches), the state-run India Meteorological Department said on its website yesterday. That’s less than 95 percent of the average predicted in April. Ten-year bonds rallied last week, with the yield slumping 13 basis points to 8.51 percent, after the central bank said it could ease monetary policy should inflation slow more than anticipated.

“If the severity of the rainfall deficit widens further into the September quarter, there will be negative implications for growth and the inflation outlook,” Radhika Rao, an economist at DBS Bank Ltd. in Singapore, wrote in a research note today.

The yield on the 8.83 percent notes due November 2023 rose two basis points, or 0.02 percentage point, to 8.56 percent in Mumbai, prices from the central bank’s trading system show. It climbed four basis points yesterday.

The Reserve Bank of India aims to curb consumer-price gains, which were 8.59 percent in April, to 8 percent by January 2015 and 6 percent a year later. A drought in the main growing regions may hurt India’s farm output, hampering efforts to revive economic growth and control prices.

India will issue data on consumer prices for May on June 12 and wholesale-price inflation figures on June 16. RBI Governor Raghuram Rajan, who has raised the benchmark repurchase rate by 75 basis points since taking charge in September, left it unchanged at 8 percent for a second straight meeting on June 3.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose two basis points to 8.24 percent, data compiled by Bloomberg show. The contracts, which jumped six basis points yesterday, slumped 22 basis points last week to the lowest level since July 2013.

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