Mumbai: Benchmark bonds advanced for a sixth day on Monday on expectations the Reserve Bank of India (RBI) will soon start cutting interest rates as inflation stayed below its estimates for the fiscal year.
The notes extended gains after completing their best week in almost a year on speculation that rate reductions by the US Federal Reserve will also spur Indian policymakers to lower borrowing costs from a five-year high. RBI next meets on 29 January, a day before the Fed’s decision.
“The recent developments are raising optimism that interest rates may be reduced sooner than later,” said S. Srikumar, chief of fixed income trade at state-owned Corporation Bank, in Mumbai. “Bonds are benefiting from that view.”
The yield on the most frequently traded 7.99% note due July 2017 fell 2 basis points, or 0.02 percentage point, to 7.54% at the 5.30pm close in Mumbai, according to RBI’s trading system. The price rose Re0.165 or 16.5 paise per Rs100 face amount, to Rs103.015.
RBI governor Yaga Venu-gopal Reddy and fellow policymakers have held the key repurchase rate at 7.75% since 30 March after raising it three times last year.