Indian Bond Volatility at One-Week High Before RBI Rate Decision

  • Reserve Bank of India will cut benchmark rate Tuesday: Survey
  • India said to plan 2.49 trillion rupee second-half borrowing

Swings in India’s benchmark bond rose to a one-week high as investors speculate on the outlook for monetary policy before the central bank’s review on Tuesday.

The Reserve Bank of India will reduce the repurchase rate to 7 percent from 7.25 percent, according to 42 of 52 economists surveyed by Bloomberg. One sees a cut to 6.75 percent while nine see no change. Governor Raghuram Rajan will then stay put for the next 12 months, a separate survey shows.

“All eyes are on the central bank and its commentary about the path for monetary easing ahead,” said Soumyajit Niyogi, an interest-rate strategist at SBI DFHI Ltd. in Mumbai. “Apart from a cut in the repo rate, the bond market is also expecting an increase in foreign investment limits.”

Ten-day historical volatility for notes due May 2025 rose to 2.28 percent on Monday, the highest since Sept. 18. The yield on the debt rose one basis point to 7.73 percent in Mumbai, the highest level since Sept. 16, according to prices from the central bank’s trading system. The rupee rose 0.2 percent to 66.0475 a dollar, prices from local banks compiled by Bloomberg show. Indian markets were shut on Friday for a public holiday.

Global funds have almost exhausted their $30 billion limit for investment in local sovereign bonds, data from the National Securities Depository Ltd. show. India is “committed to a steady expansion in the absolute value of foreign institutional investor participation,” Governor Rajan said in July.

Consumer-price inflation, the RBI’s benchmark, eased to 3.66 percent in August from a revised 3.69 percent in July. The CPI gauge has stayed below the monetary authority’s target of 6 percent by January for 12 straight months. Rajan will then target 5 percent inflation for January 2017.

India plans to borrow 2.49 trillion rupees in the six months starting Oct 1, according to a government official with direct knowledge of the matter. The plan includes raising 150 billion rupees through gold bonds, the official said, asking not to be identified before a public announcement.

The government borrowed 3.5 trillion rupees in the April-September period against planned 3.6 trillion rupees. It had budgeted 6 trillion rupees of gross market borrowing in the whole fiscal year.

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