India’s 10-year sovereign bonds rose for a third day on speculation lower oil prices and slowing inflation will give the central bank room to cut borrowing costs further after China unexpectedly reduced interest rates on Tuesday.
A 57 percent drop in Brent crude in the past year has helped curb consumer-price gains in the country, which depends on imports for more than 75 percent of its consumption. Government bond yields are well priced from a valuation perspective, according to primary dealers SBI DFHI Ltd. The rupee strengthened on Thursday.
“Everybody is now looking for a rate cut,” said Soumyajit Niyogi, an interest-rate strategist at SBI DFHI Ltd. in Mumbai. “Inflation is substantially below the central bank’s trajectory and bonds now offer a buying opportunity.”
The yield on notes due May 2025 fell three basis points to 7.77 percent in Mumbai, according to prices from the Reserve Bank of India’s trading system. It declined 12 basis points in the last three sessions, after an 11 basis point jump on Monday that marked the biggest increase for benchmark 10-year debt since December.
India’s consumer-price inflation was 3.8 percent in July, the slowest since November and about half the rate reported for the same month in 2014. Plummeting oil prices also bode well for the current-account deficit, which has narrowed by 93 percent over the past two years. RBI Governor Raghuram Rajan left the benchmark repurchase rate unchanged at 7.25 percent earlier this month after reducing it three times this year.
The rupee gained 0.2 percent to 66.0450 a dollar, according to prices from local banks compiled by Bloomberg.