Indian Bonds Gain as Central Bank Seen Following China Rate Cut

India’s 10-year bonds advanced on speculation the central bank will follow China in cutting borrowing costs to spur economic growth.

Consumer inflation slowed to 5.52 percent in October, the least since the index was created in 2012, and from as high as 11.16 percent in November 2013. A retreat in global crude prices has helped cut costs for India, which imports about 80 percent of its oil. China lowered benchmark interest rates for the first time since July 2012 on Nov. 21.

The yield on the 8.4 percent Indian notes due July 2024 fell one basis point, or 0.01 percentage point, to 8.16 percent in Mumbai, according to prices from the Reserve Bank of India’s trading system. The rate has dropped 35 basis points this quarter and reached 8.14 percent on Nov. 18, the lowest for benchmark 10-year debt since August 2013.

“The rally in Indian government bonds is likely to continue,” said Harihar Krishnamoorthy, treasurer at the local unit of FirstRand Ltd. in Mumbai. “The Chinese rate cut seems to have galvanized things. We expect the RBI to reduce borrowing costs after the federal budget in February.”

China’s move may prompt India to follow suit, Raj Kothari, a fixed-income trader at Sun Global Investments Ltd. in London, said in a Nov. 21 interview.

A rate cut would give the economy a boost, the Press Trust of India quoted Finance Minister Arun Jaitley as saying earlier this month. Goldman Sachs Group Inc. and Credit Suisse Group AG have reversed earlier forecasts and are now predicting interest rates will be reduced. Credit Agricole CIB sees a reduction at the RBI’s next policy review on Dec. 2.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, dropped six basis points to 7.89 percent, the lowest since July 2013, data compiled by Bloomberg show.

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