Indian shares surged to a record high on Thursday, with the benchmark BSE index rising above 32,000 for the first time after the consumer inflation rate eased to its lowest in five years, cementing hopes for a cut in interest rates in August.
Meanwhile, the most liquid 10-year bond yield fell as much as 4 basis points to 6.42 percent, the lowest since June 22, after data late on Wednesday showed India's annual retail inflation rate eased to 1.54 percent in June, its slowest pace in more than five years.
The inflation data is raising hopes the Reserve Bank of India could cut interest rates by 25 basis points (BPS) at its next policy review on Aug 1-2.
Sentiment was also supported as Asian shares scaled a two-year top after U.S. Federal Reserve Chair Janet Yellen signalled further rate increases in the United States would be gradual at best.
"The RBI is already under pressure, allegedly even from the finance ministry, to cut rates but I don't think it will be beyond 25 basis points," said RK Gupta, managing director at Taurus Asset Management.
"Anything more than 25 basis points will put banks under pressure as credit growth is already low."
The benchmark BSE Sensex was up 0.62 percent at 32,001.57 as of 0612 GMT.
The broader NSE Nifty, which gained as much as 0.72 percent, was trading 0.60 percent higher at 9.874.45.
Both indexes posted their third intraday record highs in four sessions.
Consumer goods stocks were among the top gainers on the NSE with index heavyweight ITC Ltd rising as much as 1.9 percent.
Bank stocks also gained on the hopes of a rate cut with top private lenders ICICI Bank Ltd and Axis Bank Ltd rising as much as 2.2 percent and 1.7 percent respectively.
Meanwhile, shares of Tata Consultancy Services, India's biggest software services exporter, was up 0.6 percent ahead of its June-quarter results later in the day.
(Reporting By Arnab Paul in Bengaluru; Editing by Gopakumar Warrier)