Sliding oil prices, RBI's open market operations buy propel Rupee, bond

India’s currency and sovereign bonds rallied as sliding oil prices improved the outlook for the nation’s finances and the central bank extended support via its open-market debt purchases.

The rupee is on course for its biggest three-day advance since September 2013, with the drop in Brent crude seen helping reduce India’s net oil import bill and narrowing its current-account deficit. The yield on local benchmark bonds fell to the lowest since April as the central bank said it would buy more debt this month than initially planned.

“It’s a better environment for bonds and the rupee, with oil being the biggest factor leading to these gains,” said Mitul Kotecha, senior emerging-markets strategist at TD Securities in Singapore. “Oil has dropped significantly and against a backdrop where market expectation is for a relatively dovish Federal Reserve hike and the dollar is seen losing some momentum -- all of that bodes well for Indian markets.”

Oil has proved to be the biggest bugbear for Indian assets given the repercussions it carries for the nation’s finances and inflation. Asia’s third-largest economy imports about 80 per cent of the fuel it needs and the drop in prices has burnished the rupee and bonds this quarter after a dreadful first nine months of 2018.

The rupee climbed as much as 0.8 per cent on Wednesday after surging 1.6 per cent on Tuesday, the most since September 2013. It is up 3.4 per cent this quarter and on course for the best such three-month period since March 2017.

India’s 10-year yield slipped 8 basis points to 7.26 per cent, its lowest since April, after sliding 12 basis points on Tuesday. The benchmark securities are on course for their best quarter since 2008. The S&P BSE Sensex Index rose for a seventh day on Wednesday.