By Cherian Thomas/Bloomberg
New Delhi: The inflation rate accelerated more than expected as prices of cement, fruits and vegetables rose.
The key wholesale price inflation rate rose to 6.46% in the week ended March 3, from 6.1% in the previous week, the Ministry of Commerce & Industry said in a weekly report released in New Delhi on 16 March. Analysts estimated the inflation rate would be 6.31%.
Record loan growth and the fastest increase in salaries in Asia have stoked prices of cement, steel and other manufactured products. Inflation has stayed above the Reserve Bank of India’s tolerance level of 5% since September and the central bank may raise borrowing costs further by mopping up excess funds available with lenders.
“The central bank will likely maintain tight liquidity conditions, but is unlikely to hike policy rates further,” said Rajeev Malik, a senior economist at JPMorgan Chase & Co. in Singapore. “Policy rates have tightened substantially. It is likely to resort to extensive use of market stabilization scheme to sterilize intervention in the foreign exchange market.”
The RBI has raised its key overnight lending rate five times in the past year to contain inflation. Last week, it resumed the sale of so-called market stabilization bonds after a gap of almost two years to mop up excess cash from the banking system.
The fastest pace of economic growth in almost two decades is luring investors to Indian stocks, lifting the rupee to a 16-month high last month.
Foreign direct investment may double to $12 billion in 2006-07, according to Trade Minister Kamal Nath, exceeding equity purchases by overseas investors for the first time. Global funds bought $8 billion of Indian shares more than they sold in 2006, following a record purchase of $10.7 billion in the prior year.
The nation’s foreign-exchange reserves increased a record $14.51 billion in the four weeks through 2 March, suggesting the central bank stepped up dollar purchases last month after buying a net $7.8 billion in all of November, December and January.
The government on 16 March revised the inflation rate for the week ended 6 January to 6.37% from 6.12%. The government revises the inflation rate after a delay of two months on additional price data.