Mumbai: India’s 10-year bonds snapped five days of losses on speculation that the central bank will refrain from raising interest rates next week. The yield on the benchmark note retreated from a one-week high on optimism that slowing inflation will prevent the Reserve Bank of India (RBI) from adding to this year’s two rate increases. RBI governor Yaga Venugopal Reddy has raised the overnight lending rate nine times since October 2004 to curb rising prices.
The yield on the benchmark 8.07% security, due January 2017, fell three basis points, or 0.03 percentage point at the 5:30 pm close of trading in Mumbai, according to RBI’s trading system. The price of the security rose 0.19, or 19 paise per 100-rupee face amount, to 99.96.
Wholesale price inflation slowed to less than 6% for the first time this year in the week ended 31 March, a government report showed last week. Prices rose 5.74% during the period, compared with a gain of 6.39% in the prior week.
The Union ministry of commerce and industry will release the report on 20 April.
The central bank, besides raising rates, also asked lenders to set aside more cash to cover deposits starting December in a bid to curb inflation fueled by excess money in the system. Bond gains were tempered by concern the higher cost of overnight funds will cut demand for debt. The rate at which banks lend to each other overnight stayed at more than 10% for the second day, compared with the average 4.9% in the previous week. A higher rate makes it more expensive to buy government securities with borrowed money.
On Tuesday, the yield on the benchmark bond rose to the highest in a week before RBI sold Rs3,000 crore of bonds on Wednesday to mop up excess cash. bloomber