India’s inflation as measured by Wholesale Price Index (WPI) dropped to 5-month low of 5.19% in July. The partially convertible rupee closed at 60.76/77 per dollar, compared with Wednesday’s close of 61.215/225, to post its biggest daily gain since the election of Modi on May 16.
In the offshore non-deliverable forwards, the 1-month contract was at 61.09/14, while the 3-month contract was at 61.65/75. The government bonds rallied on Thursday, to post their best week in nearly 3-months after media reports said the government was considering cutting its planned debt borrowing over the next 2-months.
India would cut the size of its government borrowings for April-September by around Rs150bn rupees ($2.46 billion), citing two unnamed officials with knowledge of the matter.
The benchmark 10-year bond yield closed down 5bps at 8.71%, its lowest level since July 28. The yield dropped 14bps on the week, its biggest weekly drop since the week to May 23. The new 10-year bond yield, which is set to become the benchmark, dropped 2bps to close at 8.52%.
In the overnight indexed swap market, the benchmark 5-year swap rate closed down 9bps at 8.03%, its biggest single-day fall since June 5. The dollar firm against major currencies on Monday, supported by an upbeat data on the U.S. housing sector and hopes that diplomatic efforts to end the Ukraine conflict will produce concrete results.
The euro continued to remain under pressure due to ongoing expectations that monetary stimulus programs in the U.S. will wind down at the same time the European Central Bank takes steps to loosen policy.
The pound strengthened against the dollar, after Bank of England Governor Mark Carney said over the weekend that interest rates could rise sooner than many have been expecting.