New Delhi: India’s inflation fell to a 14-month low in mid-February as cheaper fuels fed into a slowing economy. The Wholesale Price Index, the most widely watched inflation measure, rose 3.36 % in the 12 months to 14 February, lower than the previous week’s 3.92% but slightly above a forecast of 3.31% in a ‘Reuters’ poll.
It was the lowest reading since 24 November 2007 when inflation stood at 3.11%. It was 5.66% a year ago. “Fiscal year 2008-09 is likely to end with inflation at 1% or below,” said Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai. “I see very aggressive monetary action by the RBI (Reserve Bank of India), with the major part of the cuts coming in the next four months,” Hajra said.
Also See Pit Fall (Graphic)
Wholesale prices, which peaked at close to 13% in early August, have fallen tracking drops in prices of commodities, cuts in state-set fuel prices and lower factory gate duties. Bond yields eased marginally, with the benchmark federal bond ticking down one basis point to 6.58% after the inflation data.
On Tuesday, the government cut factory gate duties and reduced service tax rates to boost demand and prop up sagging growth. After aggressive rate cuts since October, RBI’s key lending rate, the repo, stands at 5.5%, while the reverse repo is at 4.0%. RBI governor D. Subbarao said in Tokyo recently there was room to cut rates, but the question was when and by how much. He, however, said a fall in inflation does not automatically mean rates will drop, too.
The economy is expected to grow 7.1% in the fiscal year ending March, a six-year low, as the global slowdown and high borrowing costs trip up industrial activity and exports.
The commerce ministry on Thursday revised the inflation rate for the week to 20 December to 5.91% from 6.38%. Reuters
(‘Bloomberg’ contributed to this story.)
Graphics by Paras Jain / Mint