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Business News/ Market / Stock-market-news/  India’s 10-year bonds rally as inflation data boosts easing bets
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India’s 10-year bonds rally as inflation data boosts easing bets

The yield on the sovereign notes due July 2024 declined four basis points, or 0.04 percentage point, to close at 7.77%

The rupee fell less than 0.1% to 62.1475 a dollar. Photo: MintPremium
The rupee fell less than 0.1% to 62.1475 a dollar. Photo: Mint

Mumbai: Indian bonds rallied, pushing the 10-year yield to the lowest since July 2013, on optimism inflation holding below the central bank’s target for a third straight month will encourage it to cut interest rates.

The Consumer Price Index rose 5% in December from a year earlier, official data showed after the markets closed on Monday. That was less than the 5.35% gain forecast in a Bloomberg survey and compared with November’s 4.38%, which was the least since the gauge was created in 2012. The Reserve Bank of India (RBI) should cut interest rates, Arvind Virmani, a member of the central bank’s monetary policy advisory panel said in an e-mail interview on Tuesday.

“Every piece of new inflation data has reinforced my earlier conclusion that it is time to cut rates," Virmani said. “At some point, the sharp downtrend in inflation will force them to change their view, resulting in monetary loosening."

The yield on the sovereign notes due July 2024 declined four basis points, or 0.04 percentage point, to close at 7.77% in Mumbai, prices from the RBI’s trading system show. That’s the lowest level for the benchmark 10-year debt since July 2013. The rupee fell less than 0.1% to 62.1475 a dollar, prices from local banks compiled by Bloomberg show.

Rajan, who left rates unchanged for a fifth straight meeting on 2 December, said that day a change in the monetary policy stance is likely in early 2015 should improvements in inflation and fiscal health continue.

India, which imports about 80% of its oil, has seen its inflation outlook improve as a 48% slump in Brent crude prices last year, the most since 2008, cut costs.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, declined three basis points to 7.62%, the lowest level since July 2013, according to data compiled by Bloomberg.

Three-month offshore non-deliverable rupee forwards rose 0.3% to 63.02 a dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars. Bloomberg

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Published: 13 Jan 2015, 05:56 PM IST
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