India’s Bonds Poised for Weekly Advance on Rate-Cut Speculation

By V. Ramakrishnan 

Indian bonds were set for the biggest weekly gain in two months on speculation the central bank will reduce interest rates to revive economic growth.

Asia’s third-largest economy grew 4.5 percent from a year earlier in the final three months of 2012, the weakest pace in almost four years, the government reported last week. Finance Minister Palaniappan Chidambaram said this week he hopes interest rates will be cut. The monetary authority, which last reduced the repurchase rate by 25 basis points to 7.75 percent in January, will review borrowing costs next on March 19.

The yield on the 8.15 percent securities maturing in June, 2022 fell seven basis points, or 0.07 percentage point, to 7.84 as of 10:30 a.m. in Mumbai, according to the central bank’s trading system. That is the biggest decline in yield since the week ended Jan. 4.

“The Reserve Bank is likely to cut rates this month as growth is slowing and inflation is easing,” said Anubhuti Sahay, an economist at Standard Chartered Plc in Mumbai. “Measures to curb the budget deficit are also a positive sign.”

Chidambaram, in his budget speech on Feb. 28, said he aims to reduce the fiscal deficit to 4.8 percent of gross domestic product in the year starting April 1, from 5.2 percent this year.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose one basis point to 7.58 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: V. Ramakrishnan in Mumbai atrvenkatarama@bloomberg.net

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