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Inflation falls, signals RBI may not raise interest rates

Inflation falls, signals RBI may not raise interest rates
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First Published: Thu, Jul 23 2009. 11 25 PM IST

The benchmark Wholesale Price Index declined 1.17% in the week to 11 July from a year earlier after falling 1.21% in the previous week. Paras Jain / Mint
The benchmark Wholesale Price Index declined 1.17% in the week to 11 July from a year earlier after falling 1.21% in the previous week. Paras Jain / Mint
Updated: Thu, Jul 23 2009. 11 25 PM IST
New Delhi: India’s wholesale prices fell for a sixth straight week, suggesting the Reserve Bank of India (RBI) is unlikely to start increasing interest rates at a meeting next week.
The benchmark Wholesale Price Index declined 1.17% in the week to 11 July from a year earlier after falling 1.21% in the previous week, the government said on Thursday. Prices retreated 1.61% in the first week of June, the biggest drop since December 1978, according to RBI data.
The benchmark Wholesale Price Index declined 1.17% in the week to 11 July from a year earlier after falling 1.21% in the previous week. Paras Jain / Mint
RBI governor D. Subbarao, who has cut the central bank’s key rates six times since October, will probably keep borrowing costs unchanged in his 28 July statement, according to a ‘Bloomberg’ survey.
Shubhada Rao, an economist at Yes Bank Ltd in Mumbai, said RBI won’t be able to keep rates low as inflation is expected to accelerate. RBI is likely to maintain the status quo on rates next week but it may find it very challenging to keep interest rates low as inflation pressures are likely to rekindle later this year, said Rao. She expects the central bank to start raising rates in the January-March quarter.
Subbarao last cut the reverse repurchase rate to 3.25% from 3.5% on 21 April to bolster the country’s $1.2 trillion economy, predicted by RBI to grow at the slowest pace since 2003.
The bank also lowered the repurchase rate by a quarter point to 4.75% and kept the cash reserve ratio unchanged at 5%.
Falling wholesale prices are only a statistical feature and don’t mean India is suffering from deflation, Subbarao said on 20 June. RBI will revise its 4% year-end inflation estimate next week as oil and commodity prices rise, according to Subbarao.
Inflation may accelerate and spell concern for food prices if insufficient monsoon rainfall this year reduces farm production, said Rohini Malkani, an economist with Citigroup Inc. in Mumbai.
India’s inflation declined as manufactured prices fell 0.05% in the week to 11 July, compared with 0.10% gain in the previous week, Thursday’s report showed. The index of fuel prices declined 10.05% after retreating 10.10% in the previous week.
The Wholesale Price Index published on Thursday may be revised in two months, after the government receives additional data.
The commerce ministry on Thursday revised the rate for the week ended 16 May to 1.65% from 0.61%.
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First Published: Thu, Jul 23 2009. 11 25 PM IST
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