Indian Swaps at Lowest Since July 2013 on Rate-Cut Speculation

India’s one-year interest-rate swaps dropped to the lowest since July 2013 on speculation the central bank will reduce borrowing costs to spur economic growth.

Gross domestic product increased 5.1 percent in the quarter ended Sept. 30, a Bloomberg survey of economists shows before data due Nov. 28. That’s lower than the 5.7 percent gain in the period ended June. Consumer-price inflation in India slowed to 5.52 percent in October, the least since the index was created in 2012. The Reserve Bank of India will cut its benchmark interest rates at the next policy review on Dec. 2, Credit Agricole CIB predicts.

One-year swaps, derivative contracts used to guard against swings in funding costs, fell one basis point, or 0.01 percentage point, to 7.88 percent in Mumbai, data compiled by Bloomberg show. The RBI’s key repurchase rate is at 8 percent after three increases between September 2013 and January this year. None of the 21 economists surveyed by Bloomberg expect any change next week.

“The markets believe it’s just a matter of time before the central bank acts on rates,” said Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd. in Mumbai. “There’s a thin chance it may cut by 25 basis points next week and if not, we may perhaps see a larger reduction early next year.”

The yield on sovereign bonds due July 2024 was little changed from yesterday at 8.16 percent, according to prices from the RBI’s trading system. It dropped to 8.14 percent earlier, the lowest rate for a benchmark 10-year note since August 2013.

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