By V. Ramakrishnan July 8 (Bloomberg) -- India’s 10-year bonds declined, snapping a two-day gain, on concern the central bank will increase policy rates for a second time this month to slow inflation and before an auction of debt tomorrow. Yields rose after the International Monetary Fund revised the nation’s 2010 economic growth forecast to 9.4 percent from its earlier prediction of 8.8 percent in April. The Reserve Bank of India raised borrowing costs last week for the third time this year after wholesale prices climbed at close to the fastest pace since October 2008. The central bank is offering 120 billion rupees ($2.6 billion) of securities. “Growth momentum is certainly strong and the central bank may do more to contain inflation,” said Roy Paul, deputy general manager at Federal Bank Ltd. in Mumbai. “Investors are also paring some positions before the auctions.” The yield on the 7.80 percent note due May 2020 rose three basis points, or 0.03 percentage point, to 7.6 percent as of 10:14 a.m. in Mumbai, according to the central bank’s trading system. The price fell 0.21, or 21 paise per 100 rupee face amount, to 101.33. Central bank Governor Duvvuri Subbarao last week increased benchmark interest rates by 25 basis points after wholesale price inflation accelerated to 10.16 percent in May. The reverse-repurchase rate is now 4 percent and the repurchase rate 5.5 percent. The next scheduled policy meeting is July 27. The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased. The rate, a fixed payment made to receive floating rates, rose to 5.68 percent from 5.65 percent yesterday. --Editors: Simon Harvey To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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