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Inflation slows to 10-month low; gives room for stimulus

Inflation slows to 10-month low; gives room for stimulus
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First Published: Fri, Jan 09 2009. 10 57 PM IST

Updated: Fri, Jan 09 2009. 10 57 PM IST
New Delhi: India’s inflation slowed to a 10- month low, giving policymakers room to implement further measures to stimulate economic growth without fanning prices.
Wholesale prices rose 5.91% in the week to 27 December from a year earlier after gaining 6.38% the previous week, the commerce ministry said in New Delhi on Friday. Economists expected an increase of 6.14%.
Also See Beating Expectations (Graphic)
The Reserve Bank of India (RBI) has lowered its benchmark interest rate four times since October to protect Asia’s third largest economy from a deepening global recession. Lower oil prices may allow for even more cuts from RBI, which is due to release its next quarterly policy statement on 27 January.
We expect further monetary easing over the next three months, said Robert Prior-Wandesforde, senior Asia economist at HSBC Holdings Plc. in Singapore.
RBI responded to weakening growth by reducing its benchmark repurchase rate by 350 basis points to 5.5% in the past four months. The proportion of deposits that lenders need to set aside as cash reserves has also been cut to 5% from 9%.
India’s $1.2 trillion (Rs58.68 trillion) economy may expand close to 7.5% this fiscal year, aided by the additional government spending, Commerce minister Kamal Nath said in an interview with Bloomberg Television in Paris on Thursday. The stimulus that we have provided for generating domestic demand will be able to address the slowdown to some extent, Nath said.
The government should have more room to adopt measures to help growth as inflation is unlikely to be a problem for at least another six to eight months, according to Montek Singh Ahluwalia, the Prime Minister’s top economic adviser.
Slowing inflation may prompt policy makers to favour further monetary easing, said Rajeev Malik, an economist at Macquarie Group Ltd in Singapore. RBI will continue its aggressive monetary easing by cutting rates by another 100 basis points in the current quarter. Inflation has eased amid weaker oil prices. Crude costs have tumbled more than 50% from a year ago, allowing the Indian government to cut retail prices of gasoline and diesel on 5 December by as much as 10%.
Friday’s inflation rate may be revised in two months, after the government receives additional price data. The commerce ministry on Friday revised the inflation rate for the week ended 1 November to 8.70% from 8.98%.
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First Published: Fri, Jan 09 2009. 10 57 PM IST
More Topics: Economy | Inflation | Stimulus | Wholesale prices | Oil |