Inflation accelerates to 6.73%

Inflation accelerates to 6.73%
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First Published: Thu, Feb 15 2007. 05 15 PM IST
Updated: Thu, Feb 15 2007. 05 15 PM IST
By Agencies
India’s inflation rate accelerated to a two-year high, staying above the central bank’s forecast for the sixth week, as prices of edible oils, dairy products and vegetables rose, the government said.
The key wholesale price inflation rate rose to 6.73 % in the week ended 3 February, from 6.58 % in the previous week, the Ministry of Commerce and Industry said in its weekly inflation report. Analysts had estimated the inflation rate would be 6.58 %. Inflation was 6.84 % in the week ended 11 Dec 2004. The central bank wants inflation at 5-5.5 % by the 31 March fiscal year-end.
Record economic growth, boosted by the fastest increase in bank loans in more than three decades and higher salaries, have stoked prices of agricultural and manufactured products. India’s central bank this week unexpectedly increased the amount of cash lenders must aside to cover deposits for the second straight month to curb inflation.
“The pressure on inflation is expected to sustain,” said Indranil Pan, an economist at Kotak Mahindra Bank Ltd. in Mumbai. “This is likely to keep the bond market nervous and anxious of any further rounds of monetary policy tightening.”
Indian bonds gained today, ending an eight-day losing streak, on speculation yields at the highest in almost six months will lure buyers. The yield on the benchmark 8.07 % bond due January 2017 fell 2 basis points, or 0.02 percentage points, to 8.07 %, as of 12:10 p.m. in Mumbai.
Record Growth
India’s $854 billion economy, the fourth biggest in Asia, may expand at a record 9.2 % in the year ending 31 March, following a 9 % gain last year, making it the world’s second-fastest-growing major economy after China.
Bank loans increased more than 30 % in each of the past two fiscal years, outpacing the 23 % growth in deposits, according to central bank data.
Workers in India this year can expect a 7 % increase in annual real salary, after adjusting for inflation, the biggest rise among the 45 countries including U.S. and Japan surveyed by human resources consultant ECA International.
The wholesale price index rose 0.2 % to 209.2 from 208.8 in the previous week, the ministry said today.
Banks in India have to keep cash equivalent to 6 % of deposits starting 3 March from 5.5 % now, the Reserve Bank of India (RBI) said. The measure will drain as much as Rs140 billion ($3.2 billion) from the banking system, it said.
The move came after the RBI Governor Yaga Venugopal Reddy raised the overnight lending rate on 31 January for the fifth time in a year to 7.5 %, making funds more expensive to banks.
The government today revised the inflation rate for the week ended 9 December to 5.63 %, from 5.32 %. The government revises the inflation rate after a delay of two months on additional price data.
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First Published: Thu, Feb 15 2007. 05 15 PM IST