At 6.39%, inflation eludes target

At 6.39%, inflation eludes target
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First Published: Thu, Apr 05 2007. 11 22 PM IST
Updated: Thu, Apr 05 2007. 11 22 PM IST
New Delhi: India’s inflation dipped marginally but remained above the upper limit of the central bank’s target for a 16th straight week, adding to pressure for further increases in borrowing costs to contain prices.
The key wholesale price inflation rate was 6.39% in the week ended 24 March from 6.46% in the previous week, the ministry of commerce and industry said in a report in New Delhi on Thursday.
The Reserve Bank of India (RBI) has been targeting an inflation rate in the band of 5-5.5% by 31 March. But faster-than-expected gains in prices may make it harder for RBI to achieve that goal.
India’s 10-year bonds headed for the biggest weekly decline in almost two months on concerns the central bank will continue to tighten the amount of money in the banking system to curb inflation.
“Monetary policy needs to be tightened,” said Robert Prior-Wandesforde, an economist at HSBC Holdings Plc in Singapore. “The accelerated pace of tightening in recent months reflects the central bank’s increasing anxiety about inflation data and recognition they have fallen behind the curve a bit.”
RBI governor Y.V. Reddy on 30 March unexpectedly raised the cash reserve ratio, or the amount of cash lenders must set aside against deposits, for the third time since December and raised the benchmark overnight lending rate for the sixth time in 15 months to a five-year high.
Inflation has remained “recalcitrant” because bank loans in the past three years have grown at the fastest pace since 1971, which has boosted demand for manufactured and farm products and created shortages, said Saumitra Chaudhuri, chief economist at rating company ICRA Ltd in Gurgaon.
India’s benchmark yields climbed to the highest in eight months on 3 April, the first day of trading after the central bank’s action on 30 March. The yield on the 8.07% bond due January 2017 rose 15 basis points this week to 8.15%, according to the central bank’s trading system.
To slow inflation, the government lowered the price of auto fuels by as much as 4.5% in February, the second cut in two-and-a-half months. Finance minister P. Chidambaram also cut tariffs on diesel and other goods in his 28 February Budget.
The cuts were the second in five weeks after Chidambaram in January unexpectedly cut duties on products from sulphur to steel.
The government last month asked steelmakers to cut prices and entered into an agreement with cement companies to hold prices for a year to help curb inflation.
The government on Thursday also revised the inflation rate for the week ended 12 January to 6.69% from 6.58%.
The government revises the inflation rate after a delay of two months on additional price data.
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First Published: Thu, Apr 05 2007. 11 22 PM IST
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