Steady inflation reinforces stable rates view

Steady inflation reinforces stable rates view
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First Published: Fri, Jul 20 2007. 03 30 PM IST
Updated: Fri, Jul 20 2007. 03 30 PM IST
New Delhi: India’s annual inflation rate held steady in early July, data showed on Friday, reinforcing expectations the central bank would leave interest rates unchanged at a July 31 policy review.
The wholesale price index rose 4.27% in the 12 months to July 7, matching the annual rise of the previous week, to be just below a median forecast of 4.32% in a Reuters poll.
Inflation rose in the last two weeks of June after hitting a 14-month low of 4.03% in mid-June, but it is well below a two-year high of 6.69% hit in late January.
Analysts said the slight pick-up in prices was mainly due to the annual monsoon pushing up food prices, a seasonal factor that was unlikely to prompt a response from the central bank.
“The spike in inflation over the last two weeks is because of primary articles shooting up again. I think this is temporary and we should see the moderation to continue going forward,” said Harish Menon, economist, ING Vysya Bank.
“I don’t expect anything in terms of monetary policy from the central bank at the next policy,”
Markets showed little reaction, with the rupee and 10-year bond moving only slightly after the data.
Annual inflation for the week ended May 12 was revised to 5.62% from 5.27%, suggesting the June low could also eventually be revised higher.
Finance Minister Palaniappan Chidambaram told Reuters on Thursday that higher crude oil and food prices did not necessarily mean monetary policy would be tightened.
The Reserve Bank of India, which is aiming to contain inflation near 5% for the fiscal year ending March 2008, kept its short-term lending rate steady at its April review after raising it five times since mid-2006.
The wholesale price index is more closely watched than the consumer price index (CPI) because it includes a higher number of products and is published weekly. The CPI is released monthly.
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First Published: Fri, Jul 20 2007. 03 30 PM IST