India’s 10-year bonds rose, pushing the yield to the lowest level since July 2010, on speculation easing inflation makes interest-rate reductions more likely.
Wholesale prices rose 5.96 percent in March, the least since November 2009 and below the central bank’s 6.8 percent projection, official data showed last week. Brent crude fell 9 percent this month, while gold declined 10.2 percent. The recent drop in commodity prices has raised the prospect of immediate monetary easing, said J. Moses Harding, executive vice president at IndusInd Bank Ltd. in Mumbai.
“With the softening of inflation, the central bank will now focus on growth,” he said. “I expect the repurchase rate to be cut by 50 basis points by the end of June.”
The yield on the 8.15 percent bonds due June 2022 fell three basis points, or 0.03 percentage point, from April 18 to 7.75 percent in Mumbai, according to the central bank’s trading system. The securities advanced for a sixth day, the longest winning streak since January. Financial markets were closed on April 19 for a public holiday.
The Reserve Bank of India has lowered the repurchase rate by 50 basis points to 7.5 percent this year and will next review policy on May 3. The nation’s gross domestic product rose 5 percent in the fiscal year ended March 31, the weakest pace since 2003, the statistics agency estimates.
Easing inflation “increases the probability of more accommodative monetary policy,” Raghuram Rajan, the top adviser in the Finance Ministry, said in an April 16 interview.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell one basis point to 7.26 percent, according to data compiled by Bloomberg.