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Business News/ Market / Stock-market-news/  India 10-year bonds gain as Goldman Sachs changes interest rate forecast to cut
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India 10-year bonds gain as Goldman Sachs changes interest rate forecast to cut

The yield on the 8.4% govt bonds maturing in July 2024 fell 4 bps to 8.18%, the biggest decline since 5 Nov

Goldman Sachs, which in September forecast that the RBI will keep borrowing costs unchanged next year, now sees it cutting the benchmark repurchase rate by 50 basis points to 7.5% by June, according to a report dated 14 November. Photo: Pradeep Gaur/MintPremium
Goldman Sachs, which in September forecast that the RBI will keep borrowing costs unchanged next year, now sees it cutting the benchmark repurchase rate by 50 basis points to 7.5% by June, according to a report dated 14 November. Photo: Pradeep Gaur/Mint

Mumbai: India’s 10-year bonds rose, pushing the yield toward a 15-month low, as a falling inflation rate boosted speculation the Reserve Bank of India (RBI) will cut interest rates.

Goldman Sachs Group Inc., which in September forecast that the RBI will keep borrowing costs unchanged next year, now sees it cutting the benchmark repurchase rate by 50 basis points to 7.5% by June, according to a report dated 14 November. Data last week showed consumer prices rose 5.52% in October from a year ago, the smallest gain since the index was created in early 2012.

“The central bank clearly has a lot more room now to cut rates and we are likely to see that happen soon," said Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd. in Mumbai. “Investors are bullish on bonds."

The yield on the 8.4% government bonds maturing in July 2024 fell four basis points, or 0.04 percentage point, to 8.18% as of 10:36 am in Mumbai, prices from the central bank’s trading system show. That’s the biggest decline since 5 November. The rate touched 8.16% on 12 November, the lowest level since August 2013.

In the currency market, the rupee strengthened 0.1% to 61.6750 per dollar, according to prices from local banks compiled by Bloomberg. Three-month offshore non-deliverable forwards were steady at 62.51. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the US currency.

Inflation, Rates

The inflation rate dropped from as high as 11.16% in November 2013 after the RBI increased interest rates and as a slump in petroleum prices cut costs for India, which imports about 80% of its oil. RBI governor Raghuram Rajan raised the repo rate three times from September 2013 through January. Brent crude oil has lost 30% since the end of June.

Credit Agricole CIB predicts a rate reduction at the RBI’s next policy review on 2 December.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, declined two basis points to 8.05%, data compiled by Bloomberg show.

One-month implied volatility in the rupee, a measure of expected exchange-rate swings used to price options, rose 10 basis points to 5.92% in Mumbai, according to data compiled by Bloomberg. Bloomberg

Manish Modi in New Delhi also contributed to this story.

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Published: 17 Nov 2014, 11:46 AM IST
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