In­dian bonds rally for third week as for­eign­ers re­sume pur­chases

The Pak Banker - - MARKETS/SPORTS -

In­dian sov­er­eign bonds capped a third weekly ad­vance as slower in­fla­tion boosted odds of an in­ter­est-rate cut and the cen­tral bank in­jected liq­uid­ity through debt pur­chases.

The rally that be­gan with the govern­ment's Feb. 29 bud­get de­ci­sion to stick to its tar­get of nar­row­ing the fis­cal deficit to a nine-year low is lur­ing global funds, with over­seas hold­ings set to in­crease this week af­ter five straight weeks of out­flows. The Re­serve Bank of In­dia was "com­forted" by the bud­get, Gov­er­nor Raghu­ram Ra­jan said last week­end while telling re­porters to "wait and see" how that feeds into mon­e­tary pol­icy. The au­thor­ity is sched­uled to re­view rates on April 5. The yield on notes due Jan­uary 2026 dropped 11 ba­sis points from March 11 to 7.52 per­cent in Mum­bai, ac­cord­ing to prices from the RBI's trad­ing sys­tem. It rose one ba­sis point on Fri­day, par­ing its three-week de­cline to 26 ba­sis points. Con­sumer prices rose 5.18 per­cent in Fe­bru­ary from a year ear­lier, the least in four months, of­fi­cial data showed on Mon­day.

"Slower in­fla­tion has ce­mented the rate-cut ex­pec­ta­tions that arose af­ter the govern­ment stayed on the path of fis­cal con­sol­i­da­tion," said Badr­ish Kul­halli, a fixed-in­come fund man­ager at HDFC Stan­dard Life In­sur­ance Co. in Mum­bai. "Also, the RBI's back-to-back bond pur­chases have added cash and helped im­prove de­mand for notes." The RBI bought 144.09 bil­lion ru­pees of bonds on Thurs­day, tak­ing funds in­jected via such open-mar­ket op­er­a­tions this month to 414.09 bil­lion ru­pees, as the cen­tral bank tack­les a cash squeeze in the fi­nan­cial sys­tem.

Over­seas hold­ings of ru­peede­nom­i­nated govern­ment and cor­po­rate debt in­creased 20.7 bil­lion ru­pees in the last two days, tak­ing in­flows for the week through Thurs­day to 13.3 bil­lion ru­pees. They fell by 119.3 bil­lion ru­pees in the last five weeks.

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