July 20 (Bloomberg) -- India’s benchmark 10-year bonds declined, pushing yields to their highest level in more than a month, on concern reduced cash at banks will push overnight rates higher, curbing demand for debt. Yields rose the most in a week on speculation the central bank will raise interest rates for a second time this month after the nation’s top statistician said inflation will accelerate in July due to higher fuel prices. The interbank call money rate rose as much as 5.70 percent today, above the 5.5 percent rate at which the Reserve Bank of India lends to banks, indicating tight cash conditions. “Expectations that liquidity will improve in early July have been belied and the cost of funding has gone up,” said S. Srikumar, a fixed-income trader at state-owned Corporation Bank in Mumbai. “Inflation is also causing concern to investors.” The yield on the 7.80 percent note due in May 2020 rose four basis points, or 0.04 percentage point, to 7.67 percent as of the 5:30 p.m. close in Mumbai, according to the central bank’s trading system. The price fell 0.30, or 30 paise per 100 rupee face amount, to 100.90. Banks borrowed an average 500.4 billion rupees ($10.6 billion) a day from the central bank through its repurchase- auction window from June 1 until yesterday. In May, the Reserve Bank of India drained a daily average of 328 billion rupees from lenders. Policy Meeting Wholesale prices rose 10.55 percent in June, a fifth month in which gains exceeded 10 percent. A decision by the government on June 25 to scrap subsidies on gasoline and increase diesel prices may add 1 percentage point to inflation, according to estimates by the central bank. “The inflation number in July will be higher than in June, in large measure because of what has happened to fuel prices,” T.C.A. Anant, the government’s top statistician said on July 16. The central bank’s next policy meeting is scheduled for July 27. Finance Minister Pranab Mukherjee said today inflation was a matter of concern and it was no longer confined to food items alone. The inflation rate may slow to between 5 percent and 6 percent by the end of March, helped by good monsoon rainfall, Cabinet Secreatary K.M. Chandrasekhar said today. One-year interest-rate swaps in India, derivative contracts used to guard against fluctuations in borrowing costs, touched the highest level today since November 2008. The fixed payment made to receive a floating rate rose 15 basis points to 5.91 percent. --Editors: Abhay Singh, Sam Nagarajan 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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