BLBG: Indian Bonds Head for Weekly Decline on Interest Rate Outlook
By V. Ramakrishnan
Dec. 4 (Bloomberg) -- India’s bonds fell, heading for a weekly decline, after policy makers signaled the need to raise interest rates in the next few months to slow inflation.
The yield on the benchmark note due 2019 rose the most in more than three months this week on speculation the central bank may increase its cash reserve requirement. Prime Minister Manmohan Singh’s Chief Economic Adviser Chakravarthy Rangarajan said on Dec.3 monetary policy action may be required to slow inflation.
“Some sort of a measure is expected definitely in January,” said S. Srikumar, head of fixed-income at state-owned Corporation Bank. The central bank may raise the cash reserve ratio, the proportion of deposits lenders keep with the central bank, he said.
The yield on the 6.9 percent note due July 2019 rose one basis point to 7.4 percent as of 9:34 a.m. in Mumbai, according to the central bank’s trading system. The price fell 0.35, or 35 paise per 100 rupee face amount, to 96.66250. The yield advanced 20 basis points in the week.
Food prices climbed 17.5 percent in the week ended Nov. 21, the government said yesterday. The central bank forecasts inflation of 6.5 percent by March 31 from 1.34 percent in October and 0.5 percent in September.
The Reserve Bank of India started to withdraw monetary stimulus in October by ordering lenders to set aside a greater proportion of deposits in government bonds. It kept the benchmark reverse repurchase rate unchanged at 3.25 percent since April.
India’s interest-rate swaps headed for their biggest weekly increase in more than a year on speculation the central bank may raise borrowing costs in the coming months to curb inflationary pressures.
The one-year swap rate rose 39 basis points since Nov. 27 to 4.91 percent, its biggest jump since August 2008. Interest- rate swaps, used to guard against fluctuations in borrowing costs, typically involve the exchange of a fixed-rate payment for a floating one.
To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net.
