New Delhi: India’s inflation held near the fastest in more than 13 years, stoking speculation the central bank will raise borrowing costs next week.
Wholesale prices rose 11.89% in the week to 12 July, after gaining 11.91% in the previous week, the commerce ministry said in New Delhi on Thursday. Economists had expected a 12.03% increase.
Prime Minister Manmohan Singh won a key parliamentary vote this week, securing continued tenure for the government and time to contain the fastest inflation since 1995. Rising prices may force the Reserve Bank of India (RBI) to increase interest rates for the third time in less than two months at its 29 July meeting.
“The central bank will raise rates as inflation remains way above its comfort zone,” said Robert Prior-Wandesforde, an economist at HSBC Group Plc. in Singapore. “We are looking for the headline rate to hit 15% by the end of fiscal 2008.”
RBI raised its benchmark interest rate twice in June, lifting it to a six-year high of 8.5% to contain inflation. It also increased the cash reserve ratio in a phased manner to 8.75%.
India will rely on monetary measures to tackle inflation, which is accelerating due to the cost of imported oil and other commodities, finance minister P. Chidambaram said on Wednesday. “Anything that is imported adds to our inflation and the answer is to take monetary measures,” he said.
The government may revise Thursday’s preliminary wholesale-price estimate in two months after receiving additional data. On Thursday, it raised its inflation estimate for the week to 17 May to 8.66% from 8.10%.