Indian bonds rally as wholesale inflation cools in October, pushes RBI for further easing

Indian government bonds rallied Tuesday after recent data showed that the country’s wholesale inflation eased in October, creating wider space for the Reserve Bank of India (RBI) for further Repo Rate cut.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 9 basis points to 6.640 percent, the yield on long-term 30-year note dipped 5-1/2 basis points to 7.104 percent and the yield on short-term 3-year note slid 9 basis points to 6.348 percent by 07:00 GMT.

India’s wholesale price index fell unexpectedly in October to 3.39 percent led by easing prices of food items and non-food items, against market expectations for a rise to 3.75 percent, from 3.57 percent in the preceding month.

Last week, the Indian central government, led by Prime Minister Narendra Modi abolished the circulation of INR500 and INR1,000 notes in order to curb black money. Further, Modi suggested the Indian citizens to exchange the respective notes from any commercial banks or nearby post office from November 10 to December 30.

The recent demonetisation drive of India government could be disinflationary in the near term and therefore strengthen the case for the Reserve Bank of India to ease in December.

The RBI next bi-monthly two-day monetary policy meeting is scheduled to be held on December 6-7. It is widely expected that the current trend of lower inflation expectations will space for the Governor Urjit Patel for further monetary easing.

Meanwhile, the Sensex fell 1.37 percent or 366.69 points to 26,452.13 and Nifty-50 futures traded 1.97 percent lower or 164.20 points at 8,170.50 by 07:20 GMT.