Mumbai: Indian federal bond yields dropped to their lowest in nearly 10 months on Friday after annual inflation fell sharply in early November, which raised hopes of further rate cuts amid signs of slowdown in economic activity.
At 9:18am, the benchmark 10-year bond yield was at 7.43%, below Wednesday’s close of 7.60%. In early trade, it hit 7.41%, its lowest since late January. The market was shut on Thursday for a local holiday.
India’s wholesale price index, the most widely watched inflation measure, rose 8.98% in the 12 months to 1 November, well below forecasts for a rise of 10.37% and its lowest since late May.
Inflation peaked at 12.91% in early August, its highest since data under the current series became available in April 1995, but worries about price pressures have eased in recent weeks as global commodities and oil prices have fallen.
And with concerns over growth and financial stability now outweighing inflation worries, the central bank has aggressively cut rates and reserve requirements since the start of October.
The repo rate, at which the central bank injects liquidity into the banking system, has been cut by 150 basis points to 7.50%. The cash reserve ratio, the proportion of deposits that banks should keep with the central bank, has been cut by 350 basis points to 5.5%.
The central bank will auction $2 billion of bonds on Friday, which is expected to sail through smoothly given positive market sentiment.