New Delhi: Inflation held near the slowest pace in at least two decades as commodity prices cooled and demand slowed, increasing the chance of an interest-rate cut by the central bank.
Wholesale prices rose 0.31% in the week to 21 March from a year earlier after gaining 0.27% the previous week, the commerce ministry said in New Delhi on Thursday. The previous week’s inflation rate was the lowest on record, according to ‘Bloomberg’ data going back to January 1990. Economists expected an increase of 0.19%.
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Cooling inflation has enabled Reserve Bank of India governor D. Subbarao to slash the key repurchase rate to an all-time low of 5% to boost slowing economic growth. The central bank, which has cut borrowing costs five times since early October, is scheduled to review rates on 21 April.
“Lower levels of inflation undoubtedly provide the Reserve Bank with more legroom to cut interest rates,” said Dharmakirti Joshi, an economist at Crisil Ltd in Mumbai, the local unit of Standard and Poor’s. “There is no fear of deflation in India.”
Prime Minister Manmohan Singh said last week low inflation rates provide room for further moderation in interest rates. India’s Rs60.3 trillion economy may have grown less than the 7.1% estimated by the government for the year ended 31 March, Planning Commission deputy chairman Montek Singh Ahluwalia said on 21 March.
Gross domestic product expanded 5.3% in the three months to 31 December, the slowest pace since 2003.
Consumer prices paid by industrial workers rose 9.63% in February from a year earlier, after gaining 10.45% the previous month. Consumer-price inflation for farm workers was 10.79%.
Thursday’s wholesale inflation rate may be revised in two months. The commerce ministry on Thursday revised the rate for the week to 24 January to 4.7% from 5.07%.
Graphics by Ahmed Raza Khan / Mint