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By Bloomberg

India’s one-year interest-rate swaps held at their lowest level since July 2013 on speculation cash supply in the banking system is improving.

The one-month interbank rate has averaged 7.87 percent so far in July, compared with 8.02 percent for the last quarter, prices from the National Stock Exchange of India Ltd. show. Net average banking-system liquidity was in a surplus of about 170 billion rupees ($2.7 billion) last week as against a deficit of 574.8 billion rupees for the period ended June 27, according to estimates by Kotak Mahindra Bank Ltd. Sovereign bonds were little changed on Wednesday while the rupee fell.

The fixed payment to lock in one-year borrowing costs has held steady since reaching a two-year low of 7.44 percent on Monday, data compiled by Bloomberg show as of 11:12 a.m. in Mumbai. The swaps have declined 10 basis points this month after rising five basis points in June.

“The market is witnessing ample liquidity,” said Soumyajit Niyogi, an interest-rate analyst at primary dealer SBI DFHI Ltd in Mumbai. “An increase in government spending is also improving the supply of funds in the financial system.”

The government had no cash balances with the Reserve Bank of India for auction on July 7, compared with a surplus of 538.94 billion rupees on June 30, central bank data show.

The yield on the notes due May 2025 was little changed at 7.78 percent, according to prices from the RBI’s trading system. It climbed three basis points on Tuesday on speculation the central bank may take steps to remove excess cash from the financial system in addition to draining funds through reverse- repurchase agreements.