New Delhi: India’s inflation rate eased to 4.36% on falling food prices, official data on Friday showed, after the central bank held benchmark interest rates steady earlier in the week.
Inflation dropped in line with market expectations for the week ended July 21 from 4.41% for the previous week on the back lower prices for food items such as pulses, fruits and eggs.
According to the wholesale price index — India’s most closely watched cost-of-living monitor — inflation stood at 4.72% for the sane period a year ago.
The latest inflation figures came after the Reserve Bank of India in its quarterly policy review on Tuesday kept its key repo rate steady at 7.75%.
But the bank warned hawkishly that “inflationary pressures remain and are more persistent than before, along with high commodity and asset prices.”
In an effort to cool credit demand, the central bank cut the amount of money available for loans by hiking the commercial banks’ cash reserve requirements by 50 basis points to 7%.
The Reserve Bank of India said billions of dollars of foreign investment in the stock market this year has flooded banks with the cash that is fuelling a boom in consumer and business spending.
Analysts say the central bank could call for a further rise in the cash reserve ratio if the problem of excess liquidity does not ease.
This week’s inflation figure was comfortably within the central bank’s medium-term target of 4.0 to 4.5% for the next three to four years and well below its goal of 5% for this fiscal year to March 2008.
Earlier this year, inflation rose to a two-year high of close to 7% — prompting the central bank to warn that the economy was showing signs of overheating.
India’s economy expanded by a scorching 9.4% in the 2006-07 financial year and similar strong growth is forecast this year.