New Delhi: India’s inflation rate held near an 11-month low as demand slowed and oil and commodity prices eased.
Wholesale prices climbed 5.64% in the week to 17 January from a year earlier after gaining 5.60% the previous week, the commerce ministry said in New Delhi on Thursday. Economists expected an increase of 5.4%.
Also See Falling Prices (Graphic)
Inflation has halved from a 16-year high in August and is likely to slow further after the government last night cut fuel costs for the second time in less than two months.
Weaker price gains give the Reserve Bank of India ample room to cut interest rates to spur growth, Suresh Tendulkar, top economic adviser to Prime Minister Manmohan Singh, said last week.
“The central bank may lower interest rates anytime soon,” said Rajeev Malik, an economist at Macquarie Capital Securities in Singapore. “The growth momentum in the next two to three quarters will continue to worsen.”
Bonds fell after the inflation report, but recovered later. The 10-year benchmark bond ended at 6.11%, off an early low of 6% and above Wednesday’s close of 6.04%.
RBI governor D. Subbarao this week lowered the central bank’s inflation forecast for the year ending 31 March to 3% from 7%. He also cut his growth forecast to 7% and signalled that RBI may add to four interest rate cuts since October to buoy expansion in India.
Subbarao has slashed the Reserve Bank’s benchmark repurchase rate by 350 basis points to 5.5%. The central bank may cut interest rates by a further 50 basis points by March, said Sonal Varma, an economist at Nomura International Plc. in Mumbai. One basis point is a hundredth of a percentage point.
The index of manufactured goods, with a 63.75% weight in the inflation basket, rose 6.21% from a year earlier, after gaining 5.9% in the previous week. The fuel price index declined 1.43%, compared with a decline of 1.32%.
Oil prices have tumbled 54% in the past year as fuel demand falls because of the global recession. The decline in fuel prices has come as a relief to India, which relies on overseas purchases to meet three-quarters of its energy needs.
On Wednesday night, the government lowered petrol prices by Rs5 a litre, diesel by Rs2 a litre and cooking gas by Rs25 a cylinder, oil minister Murli Deora said.
Inflation is on a downward trend and the fuel-price cut may lower inflation by 1 percentage point, minister of state for finance Pawan Kumar Bansal said on Thursday in New Delhi. The impact of fuel price cut will be seen in two weeks.
Prime Minister Singh, facing elections before May, has reduced taxes on consumer products and announced larger infrastructure spending plans to steer South-Asia’s biggest economy through the slowdown.