Indian bonds rally after RBI rate pause, FX-boosting measures
- RBI offered cheaper currency swaps for public-sector companies’ overseas loans
MUMBAI: India’s benchmark bond jumped to a one-month high after the central bank kept interest rates unchanged on Friday and unveiled a host of measures to draw foreign capital into local debt and equities.
While a rate pause was widely expected, some traders were betting the Reserve Bank of India would raise rates to protect a currency battered by the Iran war-led energy shock.
India has been one of the economies hardest hit by the war that has stretched into a fourth month with no immediate prospects of a peace deal between Washington and Tehran. India is the world’s third-largest crude importer and consumer, and it is heavily dependent on supplies from the Middle East.
On Friday, the RBI offered cheaper currency swaps for public-sector companies’ overseas loans, support for banks to cover hedging costs on three- to five-year deposits for non-residents.
India scraps capital gains tax on foreign investors in government debt to support Indian rupee
It also added new 15-, 30- and 40-year government bonds to the so-called fully accessible route, making the bonds the top gainers on the day.
New Delhi exempted foreign institutional investors and the BIS from capital gains tax on interest income and gains from sales of government bonds.
The measures should help shore up the currency, and could potentially bring in $30-35 billion of inflows in the next four months, said Madhavi Arora, chief economist at Emkay Global Financial Services.
The rupee gained 0.9% to end at 94.9450 per dollar, its biggest jump since April 2.
The yield on the benchmark 6.48% 2035 note settled at 6.9772%, its lowest level since May 7 and down 2 bps from Thursday’s close. Bond yields move inversely to prices.
Towards the end of the session, gains in bonds were capped after stronger than expected growth data.
Rates
India’s overnight indexed swap rates plunged as aggressive rate hike bets were unwound.
The one-year swap fell 8.25 bps to 6.0375%, while the two-year rate was down 11 bps at 6.23% and the five-year rate settled at 6.5375%, paring 9.5 bps.
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