New Delhi: India’s weekly inflation rate slowed to a 13-month low as prices of food and cereals declined, bolstering the case for the Reserve Bank of India (RBI) to refrain from raising interest rates.
Wholesale prices rose 4.03% in the week to 16 June from a year earlier, slowing from 4.28% in the previous week, the ministry of commerce and industry said in Delhi. Analysts had forecast inflation at 4.13%.
Finance minister Palaniappan Chidambaram is keen on containing inflation without hurting economic growth.
RBI has raised benchmark rates nine times since October 2004 to damp consumer demand and may now rely on the delayed effect of raising borrowing costs to a five-year high to rein in inflation.
“There’s no immediate compelling reason for them to raise rates, and they may pause,” said M. Natarajan, head of bonds and currency trading at IndusInd Bank Ltd in Mumbai. “Inflation was the main concern they had and they have been successful in reining it in.”
The benchmark 10-year government bonds headed for a second weekly gain. A pause in RBI’s policy of raising interest rates will help bolster growth. India’s industrial production grew 13.6% in April, the government said on 12 June.
The economy has averaged 8.6% growth since 2003, the second fastest after China among the major economies, causing demand for manufactured and farm goods to outstrip supply and stoking prices.
RBI governor Y.V. Reddy said in Pune on Friday that the bank is “still analyzing” the inflation data.
Inflation is at its lowest since the week ended 29 April last year, when the rate was at 3.9%, according to data compiled by Bloomberg. To check prices of food grains, which have risen at almost twice the pace of manufactured product costs in the past year, the government removed the import duty on lentils in June 2006, and on wheat in September.
The government on Friday revised the inflation rate for the week ended 21 April to 6.07% from 5.77%.