Monsoon Forecast Spurs Demand for India Bonds as Inflation Slows

  • Overseas holdings rise by 17.4 billion rupees in three days
  • Slowing inflation may open room for more rate cuts: FirstRand

A girl enjoys during a heavy rainfall in Noida, India.

Photographer: Hindustan Times via Getty Images

The rains are coming, and that’s luring the world to Indian bonds.

Overseas holdings of rupee-denominated government and corporate notes rose by 17.4 billion rupees ($261 million) in the holiday-shortened week ended April 13, the most since the period ended March 25, data from National Securities and Depository Ltd. show. The weather department on Tuesday forecast the first above-average monsoon in three years, boosting optimism higher crop output will bring down the inflation rate from a six-month low.

“The prediction of good monsoon rains adds to the positive sentiment created by slowing inflation,” said Harish Agarwal, a Mumbai-based fixed-income trader at FirstRand Ltd. “If inflation slows further, the central bank has the flexibility to ease monetary policy.”

Gains in consumer prices eased to 4.83 percent in March from a year earlier, compared with 5.26 percent in February, official data showed after the close of markets on April 12. Reserve Bank of India Governor Raghuram Rajan, who cut interest rates this month, wants to limit inflation to 5 percent by March 2017 and has said good rains could lead to further monetary easing.

The seasonal showers are crucial to keep prices in check as they account for about 80 percent of India’s total rainfall and water more than 50 percent of farmland.

Sovereign bonds rose, with the yield on notes due January 2026 falling two basis points to 7.42 percent in Mumbai, according to the central bank’s trading system. It has dropped four basis points this month, with the close of 7.41 percent on April 4 being the lowest for a 10-year benchmark security since June 2013. The rupee rose 0.1 percent to 66.5525 a dollar, prices from local banks compiled by Bloomberg show. It is down 0.6 percent this year in Asia’s worst performance.

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