India's 10-year bonds rose amid speculation inflation will ease, reducing pressure on the central bank to raise interest rates.
A fall in vegetable prices is likely to limit gains in wholesale prices to 6.5 percent in December, Chakravarthy Rangarajan, chairman of Prime Minister Manmohan Singh's Economic Advisory Council, said yesterday, the Press Trust of India reported. Prices jumped 7.52 percent in November from a year earlier, official data showed Dec. 16, the fastest since September 2012. The Reserve Bank of India left borrowing costs unchanged last week to support growth.
The yield on India's 8.83 percent sovereign notes due November 2023 dropped three basis points, or 0.03 percentage point, to 8.77 percent as of 9:53 a.m. in Mumbai, according to the central bank's trading system. The rate slid 11 basis points last week, the most in three.
"The recent statements by the government have given some confidence that inflation may have peaked," Srinivasa Raghavan, Mumbai-based executive vice-president of treasury at Dhanlaxmi Bank Ltd., said by telephone. "We could see the 10-year rate dropping to 8.70 percent by end-December."
RBI Governor Raghuram Rajan kept the repurchase rate at 7.75 percent on Dec. 18, an outcome predicted by only five of 31 participants in a Bloomberg survey. The rest saw an increase to 8 percent. Rajan had boosted the rate by 25 basis points in each of the two previous reviews since he took office Sept. 4.
Indications that vegetable prices may fall combined with a more stable exchange rate and lag effects from the previous rate increases give reason to hold the rate even though inflation is "too high," the central bank said in its policy statement, adding that the decision was "a close one."
Consumer prices climbed 11.24 percent in November, the most in data compiled by Bloomberg going back to January 2012.
India's one-year interest-rate swap, a derivative contract used to guard against swings in funding costs, slid one basis point to 8.43 percent, data compiled by Bloomberg show.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net
To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net
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