The Indian government bonds rallied Thursday as investors poured into safe-haven assets on rising speculation that the government’s demonetisation move will improve banking system liquidity and lower inflation, creating higher pressure on the Reserve Bank of India for further interest rate cut.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 3 basis points to 6.637 percent (all time low), the yield on long-term 30-year note dipped nearly 4 basis points to 7.135 percent and the yield on short-term 2-year note slid nearly 5 basis points to 6.399 percent by 07:00 GMT.

On Tuesday night, 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, said the Citi Research, Reuters reported.

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 rose 1.46 percent or 397.51 points to 27,650.04 and Nifty-50 futures traded 1.23 percent higher or 104.25 points at 8,583 by 07:30 GMT.