India 10-Year Bonds Complete Weekly Gain on Rising Rate-Cut Bets

India’s 10-year bonds completed a weekly gain on speculation easing inflation has given the central bank more room to cut borrowing costs.

Goldman Sachs Group Inc. and Credit Suisse Group AG have reversed earlier forecasts and are now predicting interest rates will be lowered as India’s consumer inflation slowed to 5.52 percent in October, the least since the index was created in 2012. China today cut benchmark interest rates for the first time since July 2012, putting it on the side of the European Central Bank and Bank of Japan in deploying fresh stimulus.

The yield on India’s 8.4 percent notes due July 2024 fell five basis points, or 0.05 percentage point, this week to 8.17 percent in Mumbai, according to prices from the Reserve Bank of India’s trading system. The rate, which rose one basis point today, reached 8.14 percent on Nov. 18, the lowest level for a benchmark 10-year security since August 2013.

“There is more noise around rates because inflation has come off and we expect the first reduction to be in the April-June quarter of 2015 should the declining inflation trend continue,” said Rajeev Radhakrishnan, Mumbai-based head of fixed income at SBI Funds Management Pvt. “There is a lot of appetite for bonds.”

Finance Minister Arun Jaitley said this week a rate cut would give the economy a boost, Press Trust of India reported.

Goldman, which in September changed its prediction from an increase to no change through 2015, now expects the RBI to lower its repurchase rate by 25 basis points in February and April, according to a Nov. 14 report. Credit Suisse has abandoned its call for an increase next year and forecasts the benchmark rate will be cut to 7.50 percent from 8 percent around mid-2015, it said in a report dated Nov. 10.

Oil, Rupee

A 28 percent slump in Brent crude prices since June 30 has helped reduce costs for India, which imports about 80 percent of its oil. Consumer-price inflation has eased from as high as 11.16 percent in November 2013 as RBI Governor Raghuram Rajan raised the repo rate three times from September 2013 through January. Credit Agricole CIB predicts a rate reduction at the RBI’s next policy review on Dec. 2.

In the currency market, the rupee dropped 0.1 percent this week to 61.7750 per dollar, according to prices from local banks compiled by Bloomberg. It rose 0.3 percent today. Three-month offshore non-deliverable forwards were little changed from Nov. 14 at 62.50. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, declined 12 basis points this week and one basis point today to 7.95 percent, data compiled by Bloomberg show.

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