India’s One-Year Swaps Advance After RBI Leaves Rate Unchanged

India’s one-year interest-rate swaps surged the most since August 2013 after the central bank left its main interest rate unchanged.

Reserve Bank of India Governor Raghuram Rajan kept the benchmark repurchase rate unchanged at 7.75 percent, the central bank said in a statement Tuesday, a move predicted by 31 of 41 economists in a Bloomberg survey. The rest forecast a cut to 7.50 percent. Rajan, who had cut the rate from 8 percent in a surprise move on Jan. 15, stressed the need to see further data confirming disinflationary pressures and “high-quality fiscal consolidation” by the government.

“Investors are a bit disappointed as the policy statement today was seen as less dovish,” said Vivek Rajpal, a Singapore-based rates strategist at Nomura Holdings Inc. “The swap rates went up as markets pushed back expectations of any faster rate cuts.”

India’s one-year swaps, derivative contracts used to guard against swings in funding costs, climbed 18 basis points, or 0.18 percentage points, to close at 7.66 percent in Mumbai, data compiled by Bloomberg show. That’s the biggest jump since Aug. 28, 2013. Sovereign bonds retreated.

Rajan lowered the proportion of deposits that banks must invest in specified securities such as government bonds to 21.5 percent from 22 percent to create space for credit expansion. The cut in the statutory-liquidity ratio was also marginally negative, Rajpal said.

The yield on the notes maturing July 2024 rose eight basis points to 7.73 percent in Mumbai, prices from the RBI’s trading system show. The rate yesterday dropped to 7.65 percent, the lowest for benchmark 10-year debt since July 2013.

In the currency market, the rupee advanced 0.2 percent to 61.6750 a dollar, in the biggest gain since Jan. 23, prices from local banks compiled by Bloomberg show. Three-month offshore non-deliverable forwards rose 0.3 percent to 62.59. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Before it's here, it's on the Bloomberg Terminal.