Mumbai: Indian bonds rose, snapping four days of losses, on speculation the central bank will rein in the fastest inflation in more than a decade. Later in the day, the RBI hiked the repo rate by 50 basis points.
Benchmark 10-year notes gained the most in more than a month after Reserve Bank of India (RBI) governor Yaga Venugopal Reddy said on Monday he is confident that a “well-managed smooth adjustment” will rein in prices. The comments spurred demand for debt securities, said S. Ananthanarayan, chief of fixed-income trade at Kotak Mahindra Bank Ltd.
“The central bank is confident of managing most aspects that pressure inflation and is willing to take pre-emptive actions,” Ananthanarayan said. “Investor confidence is a lot stronger, which should help bond yields decline further.”
The yield on the 8.24% note due April 2018 fell 8 basis points, the most since 12 May, to 8.57% at the 5:30pm close in Mumbai, according to the central bank’s trading system. The price rose 0.50, or 50 paise per Rs100 face amount, to 97.85. A basis point is 0.01 percentage point. Reddy unexpectedly raised the benchmark repurchase rate for the first time in 15 months on 11 June to a six-year high of 8%, to curb inflation.
“The RBI will play its part in moderating and managing aggregate demand so that price pressures don’t intensify,” he told reporters on Monday. “The RBI will take determined and calibrated measures as and when warranted, with focus on managing expectations and enabling adjustments in the economy in response to the oil shock.”
The five-year fixed swap rate, which investors must pay in exchange for receiving a floating rate, rose to a record 9.57% from 9.32%.