Interest Rates Peak as Inflation Abates: India Credit

The Reserve Bank of India, after raising interest rates 1.25 percentage points this year, is coming to the end of the most restrictive credit-tightening in Asia with inflation abating and companies signaling a peak in their short-term borrowing costs.

The cost of fixing rates on money for three years in the market for so-called interest-rate swaps, tumbled 37 basis points in August, the most in 20 months, to 6.57 percent, data compiled by Bloomberg show. The last time they fell as much was in December 2008, when Reserve Bank of India Governor Duvvuri Subbarao cut rates to shield the economy from the global recession.

Policy makers raised the benchmark reverse repurchase rate four times since March to 4.5 percent, to stem inflation as India expanded at the fastest pace among major economies after China and Brazil. Wholesale prices rose less than 10 percent on an annual basis for the first time in six months in July, and the central bank predicts inflation will slow to 6 percent by March 31.

“The mood is changing,” Dhawal Dalal, head of fixed- income in Mumbai at DSP Blackrock Investment Managers Pvt., an Indian venture of the world’s biggest asset manager that oversees the equivalent of $5.2 billion, said in a Sept. 3 interview. “A section of the market now thinks the RBI may decide not to hike rates this month.”