By Anil Varma Nov. 18 (Bloomberg) -- India's bonds gained as oil prices near a 21-month low stoked speculation inflation will slow and add pressure on the central bank to reduce interest rates. Benchmark 10-year yields slid to a nine-month low after crude oil fell 3.7 percent in New York yesterday. India's inflation rate dropped in the week ended Nov. 1 to the lowest since May, a government report showed last week. Central bank Governor Duvvuri Subbarao said today he will take ``appropriate action at an appropriate time.'' ``The slide in petroleum prices, along with the economic slump, has increased expectations that the central bank will cut its benchmark rate further,'' said S. Srikumar, chief debt trader at state-owned Corporation Bank in Mumbai. ``Inflation is going to drop sharply from here.'' The yield on the 8.24 percent note due April 2018 fell 4 basis points to 7.47 percent as of 2:26 p.m. in Mumbai, according to the central bank's trading system. The price gained 0.28, or 28 paise per 100 rupee face amount to 105.14. A basis point is 0.01 percentage point. India may cut retail fuel prices should the local currency and crude oil stabilize, NDTV Profit network reported on Nov. 12, citing the oil ministry. Wholesale prices increased 8.98 percent in the week to Nov. 1 from a year earlier, after rising 10.72 percent the previous week. The 1.72 percentage point decline is the biggest in such a period in 18 years, according to data compiled by Bloomberg. Inflation touched a 16-year high of 12.91 percent in August. Rate Cuts India's central bank has cut its key repurchase rate twice since Oct. 20, lowering the rate to 7.5 percent from a seven- year high of 9 percent. Finance Minister Palaniappan Chidambaram signaled interest rates will fall and said he will examine measures to spur consumer spending. He was speaking at the World Economic Forum's India Economic Summit in New Delhi today. Bonds also gained on speculation investors are seeking the relative safety of government debt as local stocks declined. ``Economies are slowing and other asset classes are making losses,'' Srikumar said ``That increases the attraction of secure investment options such as government bonds.'' The Reserve Bank of India last month lowered its economic growth forecast for the year ending March 31 to as low as 7.5 percent from 8 percent previously. India's benchmark Sensitive Index fell as much as 4.5 percent today, extending this year's slide to 56 percent. To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.

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