New Delhi: Inflation slowed to near a one-year low, giving the Reserve Bank of India (RBI) more room to cut interest rates and stimulate growth.
Wholesale prices fell 5.07% in the week to 24 January from a year earlier after gaining 5.64% the previous week, the commerce ministry said in New Delhi on Thursday. Economists expected an increase of 5.25%.
Also See Prices Ease
RBI governor D. Subbarao had said last week inflation will slow to below 3% by 31 March and indicated the central bank will reduce rates to help the economy weather the global recession. A top aide of Prime Minister Manmohan Singh said on Thursday that rate cuts may come after the government’s interim budget on 16 February.
“Interest rates are bound to fall as prices ease and the economy slows,” said N. R. Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi. “The central bank will have to assess the government’s borrowing programme before it sets rates.”
The central bank will “have to figure out” the liquidity that will be needed in the banking system after seeing the government’s borrowing programme for the fiscal year starting 1 April, said Suresh Tendulkar, chairman of Prime Minister’s economic advisory council.
The government will announce an interim budget on 16 February as its five-year term ends in May. RBI kept interest rates unchanged last week after lowering them to a record on 2 January to help shield Asia’s third largest economy from a global slump.
RBI’s reverse repurchase rate is at 4% and the repurchase rate at 5.5%.
Wholesale prices in the week to 24 January fell after the index of manufactured products declined by 0.5%, Thursday’s statement said.. The index of fuel, power and light rose 0.6% on higher prices of naphtha and furnace oil. Thursday’s inflation rate may be revised in two months, after the government receives additional data. The commerce ministry cut the inflation rate for the week ended 29 November to 7.86% from 8%.