Indian sovereign bonds rise for second day on inflation optimism

NEW DELHI: India's 10- year sovereign bonds advanced the most this week on speculation the recent decline in oil prices will help slow inflation from a ninemonth high. Brent crude prices have retreated 4.8 percent in August following July's 18 percent plunge. That cuts import costs for India, which gets about three quarters of its oil from abroad. Reserve Bank of India Governor Raghuram Rajan held interest rates unchanged at an Aug. 4 policy review after consumer-price gains accelerated to 5.40 percent in June, near his target of 6 percent by January. The rupee was steady Thursday.

"Oil's drop can ensure inflation remains subdued," said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. in New Delhi. "That will create room for the central bank to cut rates once more before the year ends." The yield on the notes due May 2025 fell one basis point to 7.83 percent as of 11:02 a.m. in Mumbai, according to prices from the RBI's trading system. It can drop to 7.65 percent by Dec. 31, Sharma predicts. Rajan left the benchmark repurchase rate at 7.25 percent after three reductions this year and said the central bank will monitor developments for room to ease policy further as it awaits greater transmission of previous cuts. The rupee was little changed at 63.7675 a dollar, according to prices from local banks compiled by Bloomberg. The currency has risen 0.6 percent this month in Asia's best performance.