India’s 10-Year Bonds Cap Biggest Weekly Gain in Two Months

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India’s sovereign bonds advanced, with the 10-year yield completing its biggest weekly drop in almost two months, on speculation cooling inflation will prompt the central bank to ease monetary policy.

Consumer prices rose 3.78 percent in July from a year earlier, less than the 4.4 percent median forecast in a Bloomberg survey, data showed on Wednesday. That compares with the central bank’s 4 percent forecast for August. The rupee had its sharpest weekly decline since April after China’s surprise yuan devaluation spurred a rout in Asian currencies.

The yield on the securities due May 2025 fell six basis points this week, the most since the period ended June 19, to 7.75 percent in Mumbai, according to prices from the central bank’s trading system. It was little changed on Friday.

“Odds are now in favor of another rate cut by the Reserve Bank of India,” said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. in New Delhi. “RBI’s decision is data-dependent and one couldn’t hope for a better inflation data than this.”

RBI Governor Raghuram Rajan left the benchmark repurchase rate unchanged on Aug. 4 after inflation quickened to its fastest pace in nine months in June. He has reduced the policy rate three times so far this year.

The rupee weakened 1.8 percent from Aug. 7 to 65.0075 a dollar, according to prices from local banks compiled by Bloomberg. That’s the sharpest weekly decline since the week-ended April 24. It snapped seven days of losses to gain 0.2 percent on Friday.

Asian currencies recorded the biggest weekly decline in four years after China’s surprise yuan devaluation raised concern the slowdown in the world’s second-biggest economy is deepening. The rupee on Thursday fell to the lowest level since September 2013 to 65.1050 a dollar as a central bank adviser said the currency needs to adjust downwards to help boost exports.

It is possible that China’s devaluation “will trigger a currency war,” Chetan Ghate, a member of the RBI’s external advisory panel on monetary policy said in an e-mail interview this week.

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