New Delhi: Inflation slowed to an 11-month low, paving the way for further stimulus measures to bolster an economy expanding at the weakest pace in six years. Bonds rose.
Wholesale prices climbed 5.24% in the week to 3 January from a year earlier after gaining 5.91% the previous week, the commerce ministry said on Thursday. Economists expected an increase of 5.33%.
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Officials from Prime Minister Manmohan Singh’s government are meeting industry representatives next week to discuss ways to boost growth in Asia’s third largest economy. Economists reckon Reserve Bank of India (RBI) governor D. Subbarao will take advantage of slowing inflation to add to four interest rate cuts in less than three months.
“The decline in inflation gives the central bank room to lower rates,” said Prasanna Ananthasubramaniam, an analyst at ICICI Securities Ltd in Mumbai. “Further declines in inflation and slowing demand will make policymaking very challenging.”
The yield on the 8.24% note due April 2018 fell three basis points to 5.55% at the 5.30pm close in Mumbai, according to RBI’s trading system.
Inflation in India has almost halved from a 16-year high of 12.91% in August as a global recession drives down prices of oil and other commodities. That’s given the government and the central bank the opportunity to unveil measures to spur a slowing economy without fanning prices.
“We are seeing a healthy, robust decline in inflation numbers,” Ashok Chawla, economic affairs secretary, said in New Delhi on Thursday. “The trend in very clear and we expect inflation will ease to 3-4% by the end of March.”
Subbarao has slashed RBI’s benchmark repurchase rate by 350 basis points to 5.5% since October. Borrowing costs may be lowered again when the central bank releases its next policy statement on 27 January, said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd, the local unit of Standard and Poor’s.
Prime Minister Singh, facing elections before May, is also spending more to shield India from the world economy’s worst crisis since the Great Depression. Government had on 2 January unveiled a second stimulus package to inject capital into banks and allow overseas investors to double purchases of debt. An initial plan released on 7 December allocated an additional Rs20,000 crore in spending in the year ending 31 March and cut taxes on cars, motorbikes and other consumer goods.
Industry representatives will meet government officials on 21 January to discuss further measures to stimulate India’s $1.2 trillion (Rs58.92 trillion) economy, commerce and industry minister Kamal Nath had said on 12 January.
Growth in India’s economy has slowed for two straight quarters, and the government is forecasting an expansion of 7% this fiscal year, the weakest since 2003. Growth may ease to 6.2% in the year from 1 April, according to HSBC Group Plc.
Inflation has eased amid weaker oil prices. Crude costs have tumbled at least 50% from a year ago, allowing the government to cut retail prices of petrol and diesel on 5 December by as much as 10%.
Thursday’s inflation rate may be revised in two months, after the government receives additional price data. The commerce ministry on Thursday revised the inflation rate for the week to 8 November to 8.71% from 8.9%.
Gaurav Singh contributed to this story.