New Delhi: Inflation slowed to a five-month low, increasing the likelihood?that?the central bank will end its two-and-a-half year run of interest rate rises.
The key wholesale price inflation rate fell to 5.44% in the week ended 5 May, from 5.66% in the previous week, the ministry of commerce and industry said on Friday. Analysts had forecast inflation at 5.3%.
“Right now the inflation is about 5.5%,” said Prime Minister Manmohan Singh. “We’ll bring down the level to 5% in the next couple of months. There are some concerns on the price rise, but prices will be controlled,” he said.
Bonds yields rose to the highest this week after the inflation rate was more than expected. Finance minister P. Chidambaram had said on Thursday that higher borrowing costs, customs duty cuts and the import of wheat and lentils will help contain inflation, which has remained above the central bank’s target of 5% since September. “We are nearing the end of the current tightening cycle,” said Manika Premsingh, an economist at Edelweiss Capital Ltd . “Our forecast suggests that inflation should fall below 5% before the last week of May.”
Inflation exceeded forecasts as food prices rose 11.08% and the onset of summer hurt output of fruits and vegetables. The gain in manufactured products prices eased to 5.15% in the first week of May from 5.51% in the previous week.
The yield on the benchmark 10-year government bond rose three basis points to 8.15% at 12:30pm in Mumbai, according to Bloomberg data.
The Reserve Bank of India raised interest rates nine times since October 2004 to damp consumer demand for manufactured goods. The bank’s actions were complimented by Chidambaram, who has since January cut import taxes on cement, wheat, pulses, and reduced prices of petrol and diesel to help slow price gains.
Inflation was at 5.36% in the week ended 2 December 2006, according to Bloomberg data.
The government started importing wheat for a second year and halted the exports of lentils to check food prices that have risen at twice the pace of manufactured goods in the past year. The central bank may be approaching the end of its policy of raising rates, nine of 11 analysts in a Bloomberg survey said. The Centre on Friday revised the inflation rate for the week ended 10 March to 6.51% from 6.46%.