BLBG: India’s Bonds Gain as Yields at Two-Month High Attract Buyers
Indian bonds gained on speculation yields near the highest level in more than two months attracted investors given the outlook for further interest-rate cuts by the central bank.
The most-traded note maturing in 2018 ended a three-day slide before a government report today that economists forecast will show wholesale-price inflation slowed to the least in 15 months. Acting Finance Minister Pranab Mukherjee yesterday signaled there was further scope to lower borrowing costs to boost the economy.
“Investors are looking at the prospect of rate cuts for macro-economic support,” said Paresh Nayar, chief currency and bond trader at Development Credit Bank Ltd. in Mumbai. “That is why yields are falling today and may continue in the near future.”
The yield on the 8.24 percent note due April 2018 fell five basis points to 6.60 percent as of 10:50 a.m. in Mumbai, according to the central bank’s trading system. The price rose 0.33, or 33 paise per 100 rupee face amount, to 111.12. A basis point is 0.01 percentage point.
The inflation report due at noon local time today will show wholesale prices rose 3.4 percent in the week ended Feb. 14, from 3.9 percent the previous week, according to a Bloomberg News survey of 16 economists.
India raised its borrowing target for the current fiscal year that ends March 31 by 80 percent to 2.61 trillion rupees ($52 billion), as it seeks to increase spending and revive growth. It plans a record 3.62 trillion rupees in sales in the year from April 1.
Rate Cuts
The nation’s budget deficit will grow to 6 percent of gross domestic product this year, Mukherjee said on Feb. 16, double the original forecast. The shortfall for the 12 months through March 2010 was predicted at 5.5 percent.
“I am fully concerned that increased public spending may put pressure on the government’s borrowing program and overall credit in the economy,” Mukherjee said yesterday, in the upper house of parliament. “There is, however, scope for appropriate compensatory monetary policy action. That, I am sure, will be exercised by the Reserve Bank of India at the right time.”
The Reserve Bank of India held interest rates unchanged at a quarterly review on Jan. 27, after cuts to unprecedented lows on Jan. 2. The repurchase rate, which has been lowered four times since October, is 5.5 percent and the reverse repurchase rate is 4 percent.
