By V. Ramakrishnan Jan. 29 (Bloomberg) -- India’s 10-year bonds traded at their highest level in six weeks as investors speculated the central bank will refrain from raising the benchmark interest rate at a policy review today. The Reserve Bank of India may leave its overnight rate, at which it drains cash from banks, at a record-low 3.25 percent, choosing instead to raise banks’ cash reserve ratio to curb inflation that accelerated to a 13-month high in December, a Bloomberg News Survey showed. The central bank may ask lenders to set aside 5.5 percent of their deposits as reserves, from 5 percent now, according to all but two of 25 economists polled. “The broad expectation is that the central bank will try to contain inflation without hurting growth,” said Mukesh Kumar, a fixed-income trader at government-owned State Bank of Bikaner & Jaipur in Mumbai. “If the key policy rate is raised, then bonds may fall.” The yield on the 6.35 percent note due January 2020 was at 7.55 percent as of 9:29 a.m. in Mumbai, unchanged from yesterday’s closing level, which was the lowest since Dec. 17, according to the central bank’s trading system. The price was 91.70 per 100-rupee face amount. The central bank is scheduled to release its monetary policy decision at 11:15 a.m. in Mumbai today. Seven of the economists in the Bloomberg survey predicted the benchmark reverse repurchase rate will be raised to 3.5 percent from 3.25 percent, while the rest forecast no change. Accelerating Inflation The wholesale-price index, used to measure inflation, may be recording year-on-year increases of 9 percent by the end of March, Pronab Sen, secretary of the department of statistics, said on Jan. 21. The gauge rose 7.31 percent in December. An index measuring wholesale food prices increased 17.4 percent in the week to Jan. 16, following a 16.81 percent gain the previous week, government data published yesterday showed. Food-price inflation reached 19.95 percent in the week to Dec. 5, the fastest pace since December 1998. Addressing supply constraints will be “critical for enhancing the effectiveness of any anti-inflationary policy measures,” the central bank said in a report yesterday. The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased. The rate, a fixed payment made to receive floating rates, rose one basis point to 6.87 percent. To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net.

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