India Bonds Complete Second Weekly Gain After Diesel Price Rise

India’s 10-year government bonds completed a second weekly advance on optimism a diesel-price rise will bolster government finances and may increase the chance monetary policy will be eased.

The price of diesel, subsidized by the state, was raised 14 percent to 47 rupees ($0.86) a liter, the oil ministry said in an e-mailed statement yesterday. That’s the first increase since June 2011, according to Indian Oil Corp.’s website. The Reserve Bank of India, which last cut the repurchase rate by 50 basis points to 8 percent in April, will review policy Sept. 17.

“The diesel price hike and hopes for further fiscal consolidation will increase expectations of monetary support from the RBI,” Barclays Plc analysts including Singapore-based Kumar Rachapudi wrote in a research note today. “The RBI has been citing fiscal consolidation, of which subsidy curtailment is a major part, as a precondition for cutting rates.”

The yield on the 8.15 percent notes due June 2022 fell two basis points, or 0.02 percentage point, this week to 8.18 percent in Mumbai, according to the central bank’s trading system. The rate was little changed today.

Yields erased gains after rising as much as eight basis points to the lowest level since July 25 as government data showed inflation exceeded estimates.

The wholesale-price index rose 7.55 percent from a year ago, after climbing 6.87 percent in July, data from the trade ministry showed today. The climb exceeds all estimates in a Bloomberg News survey, whose median projection was 7.1 percent.

The central bank has kept the repurchase rate unchanged in the last two policy meetings, citing inflation risks. Thirty four of 38 economists in a Bloomberg News survey predict the central bank will once again leave the rates at current levels at next week’s review.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell four basis points this week to 7.75 percent today and rose one basis point today, according to data compiled by Bloomberg.