MUMBAI: Indian government bond yields may dip marginally in early trades on Wednesday tracking an overnight fall in oil prices, which may boost sentiment toward inflation expectations.

The benchmark Indian 10-year government bond yield is seen in a 7.40%-7.45% band, a trader with a private bank said.

The yield had ended at 7.4261% on Tuesday. “There are no major factors to track and fall in oil prices should aid at least in the initial trades,” the trader said.

Global oil prices fell on Tuesday, with the benchmark Brent crude contract ending at $90 per barrel on fears of higher US supply combined with an economic slowdown and lower Chinese fuel demand.

China, the world’s top crude oil importer, indefinitely delayed release of economic indicators originally scheduled to be published on Tuesday, indicating to the market that fuel demand is significantly depressed in the region.

India is one the largest importers of crude oil and easing prices of the commodity are expected to help reduce inflationary pressures.

Meanwhile, the Reserve Bank of India (RBI) in its monthly bulletin published earlier this week, said retail inflation is set to ease from September levels, while economic activity is poised to expand that had prompted bond buying.

Indian bond yields dip as RBI comments on inflation aid sentiment

India’s annual retail inflation had accelerated to a five-month high of 7.41% in September, its ninth straight reading above the targeted 2%-6% band.

Jayant Varma, a member of the RBI’s monetary policy committee, told Reuters on Monday that the central bank should pause rate hikes despite unacceptably high inflation to avoid stalling a recovery in economic growth.

The RBI’s rate-setting panel had raised the benchmark repo rate by 50 basis points in September, the fourth straight increase to tame stubbornly high inflation.

It has raised repo rate by 190 bps in May-September.

Separately, traders will also remain focused on moves in US yields that have been tracking moves in U.K. bonds amid volatility.