The 11-year bonds gained for a second day on speculation yields near their highest level since 2007 will lure buyers. The Reserve Bank of India (RBI) raised the repurchase rate to 6.5 per cent from 6.25 per cent on January 25. Policy makers increased the repurchase rate six times last year, the most of any central bank in Asia.
The yield on the most-traded 8.08 per cent bond due August 2022 fell two basis points to 8.18 per cent as of the 5 pm close in Mumbai, according to the central bank’s trading system. The rate touched 8.26 per cent on January 24, the highest level since it was issued in August 2007. A basis point is 0.01 percentage point.
The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was unchanged at 7.38 per cent from yesterday.
Rupee rises
The rupee gained on speculation overseas investors will pump funds into Asia’s third-biggest economy to take advantage of accelerating growth.
The rupee snapped a five-day decline after RBI raised the repurchase rate to 6.5 per cent from 6.25 per cent on January 25. Policy makers increased the rate six times last year, the most of any central bank in Asia, to cool inflation. Global funds bought $42.8 million more Indian equities than they sold on January 24, according to data from the Securities & Exchange Board of India.
“The capital inflows have helped bring back confidence,” said Vishnu Varathan, a Singapore-based economist at Capital Economics (Asia) Pte. The interest-rate “increase didn’t have much impact on the rupee when it was announced as people were more concerned about the current-account deficit,” he said.
The rupee rose 0.3 per cent to 45.565 per dollar as of the 5 pm close in Mumbai, according to data compiled by Bloomberg. It reached a seven-week low of 45.90 on January 21. Financial markets in India were closed yesterday for a holiday.
The central bank forecast this week that the economy will grow 8.5 per cent in the financial year through March, from 7.4 per cent last financial year. The monetary authority also said India’s current-account deficit, amounting to 3.5 per cent of its $1.3 trillion economy, was unsustainable.
Offshore forwards indicate the rupee will trade at 46.36 to the dollar in three months, compared with expectations for a rate of 46.54 on January 24. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
