Indian Bonds Gain Most in a Week as Oil Seen Curbing Inflation

  • Brent's slide to cut costs for the net oil-importing nation
  • Rupee climbs 0.4% after dropping to a two-year low on Monday

India’s sovereign bonds rose, pushing the 10-year yield down by the most in a week, as an overnight retreat in oil prices raised optimism inflation will slow further.

Brent crude prices fell 4 percent on Monday and have slid 10 percent in September, making imports cheaper for a nation that gets about three-quarters of its oil from overseas. Consumer prices rose 3.78 percent in July from a year earlier, the slowest pace in eight months, and have held below the central bank’s 6 percent inflation target by January since August 2014.

“The drop in oil prices takes away India’s inflation worries to a great extent,” said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. in New Delhi. Bond markets will now be watching for the Reserve Bank of India’s stance on interest rates when it reviews policy on Sept. 29, he said.

The yield on government notes due May 2025 fell three basis points, the most since Sept. 1, to 7.77 percent in Mumbai, according to prices from the central bank’s trading system.

RBI Governor Raghuram Rajan has lowered the benchmark repurchase rate by 75 basis points in three moves this year to 7.25 percent. He kept borrowing costs unchanged at an Aug. 4 review, saying the central bank would monitor the transmission of previous cuts as it looks for room to ease policy further.

The rupee rose 0.4 percent to 66.5475 a dollar, according to prices from local banks compiled by Bloomberg. The currency dropped to 66.8650 on Monday, the weakest level since September 2013.

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