* Yields ease to 2-½ month lows ahead of inflation data
* Banks buy bonds to keep up with regulatory requirement
* Traders expect inflation to provide direction on Friday
(Updates to close)
By Anurag Joshi
MUMBAI, Sept 4 (Reuters) - Indian federal bond yields eased
to their lowest since mid-June on Thursday, as traders awaited
official inflation data and banks bought securities to keep up
with regulatory requirements.
The yield on the 10-year benchmark bond <IN082418G=CC> ended
at 8.47 percent, its lowest since June 19, according to Reuters
data and 14 basis points lower than Tuesday's close of 8.61
percent.
Volume was a huge 124 billion rupees ($2.8 billion) on the
central bank's trading platform, with the 10-year bond accounting
for half the traded volume.
Data released after market hours showed the annual inflation
rate at 12.34 percent for the week ended Aug. 23, lower than a
Reuters poll forecast of 12.44 percent and the previous week's
12.4 percent. See [ID:nDEL339655]
Traders expected yields to ease further on Friday.
"Inflation will be more a deciding factor than crude," said
Anoop Verma, associate vice president at Development Credit Bank.
Oil <CLc1> traded below $110 a barrel from a record high of
above $147 in mid-July, encouraging investors to buy bonds.
India imports about 70 percent of its oil and high prices put
pressure on the government to raise state-set prices of petrol,
diesel and cooking gas.
The government sharply raised prices in early June, pushing
inflation into double-digits and prompting the central bank to
tighten its policy.
Traders said a few banks built positions to comply with the
central bank's statutory liquidity ratio, which requires them to
invest at least a quarter of their deposits in government bonds.
($1=44.3 Indian rupees)
(Editing by Mark Williams)
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Keywords: MARKETS INDIA MONEY/