Bonds gained, pushing 10-year yields to the lowest level in more than six weeks, after the central bank cut interest rates for a third time this year.
The notes climbed for a fifth day, the longest stretch in four months, after Reserve Bank of India Governor Duvvuri Subbarao said local banks have been slow to cut borrowing costs and today’s decision was “taken to reinforce this process”.
The yield on the 6.05 per cent note due 2019 tumbled 21 basis points, or 0.21 percentage point, to 6.18 per cent at the close, according to the central bank’s trading system. The price rose 1.51 per 100-rupee face amount to 99.07.
The economy will probably expand 6 per cent in the financial year that started April 1, the slowest pace since 2003, the central bank said in a statement. “We believe some more, though gradual, monetary easing will happen to bring confidence on the economy and sustained growth,” said Deepali Bhargava, a strategist at the Indian unit of ING Groep in Mumbai. The prospect of further rate cuts will support bonds, she said. Yields may decline to 6 per cent by the end of June, Bhargava said.
Only six of 15 analysts in a Bloomberg News survey expected the central bank to cut the reverse-repurchase rate, which was reduced to 3.25 per cent from 3.50 per cent. The overnight lending rate, or the repurchase rate, was lowered by a quarter- percentage point to 4.75 per cent, with 10 of 16 economists predicting a cut. Both benchmarks are now the lowest since they were introduced in 2000.
Rupee drops a fourth day
The rupee fell for a fourth day, the longest losing streak in seven weeks, as the central bank forecast the slowest economic growth since 2003.
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The currency closed at the lowest level in almost three weeks and the benchmark share index dropped for a second day after the Reserve Bank of India forecast Asia’s third-largest economy will expand as little as 6 per cent in the year that began April 1. The rupee fell 0.2 per cent to 50.445 per dollar at the close, according to Bloomberg data. The currency slid 0.9 per cent yesterday, the biggest decline this month, and has lost 3.6 per cent so far this year.
“The economic outlook is negative as far as the rupee is concerned,” said Roy Paul, assistant manager of treasury at Federal Bank in Mumbai. “The downtrend in equities is fueling the rupee’s weakness.”
RBI Governor D Subbarao said in a statement RBI’s efforts are aimed at creating consumer demand and spurring growth, which he expects will remain favourable compared with most countries because better rains will lead to increased farm production.
“However, any upturn in the growth momentum is unlikely in view of the projected contraction in global demand during 2009, particularly in trade,” he said. India’s $1.2 trillion economy grew an estimated 7.1 per cent in the last financial year, according to the government.