By V. Ramakrishnan Jan. 12 (Bloomberg) -- India’s 10-year bonds extended losses on heightened speculation the central bank will raise interest rates after a government report showed factory output rose at the fastest pace in more than two years. The yield on the 6.35 percent note due in January 2020 climbed to the highest level in almost two months after output at factories, utilities and mines increased 11.7 percent in November from a year earlier, after gaining 10.3 percent in October, the statistics agency said in New Delhi today. That was more than the 10 percent median estimate in a Bloomberg News survey of 25 economists. “Bonds have fallen because this is one more signal that a recovery is taking place,” said Bekxy Kuriakose, who manages the equivalent of $1 billion in Indian debt at DBS Cholamandalam AMC Ltd. in Mumbai. “Now we will wait for the monetary policy meeting,” scheduled for Jan. 29. The yield rose five basis points to 7.71 percent as of 1:05 p.m. in Mumbai, according to the central bank’s trading system. The price dropped 30 paise per 100 rupee face amount to 90.69. Kuriakose said some investors are predicting that policy makers will raise the amount of funds that banks must set aside with the central bank and benchmark borrowing costs at its meeting this month. Reserve Ratio The so-called cash-reserve ratio is now 5 percent. The reverse repurchase rate has been kept at a record-low 3.25 percent since April and the repo rate, at which the central bank lends to banks, has held at 4.75 percent. India’s wholesale price index, the main measure of inflation, rose 4.78 percent in November, more than three times October’s 1.34 percent pace. A gauge of food articles compiled by the commerce ministry increased 18.22 percent in the week ended Dec. 26 from a year earlier, following a 19.83 percent gain the prior week. Food-price inflation accelerated to 19.95 percent in the week to Dec. 5, the fastest since December 1998. Recent data show growth is gathering momentum in India, where manufacturing climbed at the fastest pace in seven months in December, according to the Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics. Exports surged to $14.6 billion in December, the highest amount in 15 months. To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net.

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