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Inflation up a notch to 4.10%; may help stave off hike in rates

Inflation up a notch to 4.10%; may help stave off hike in rates
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First Published: Sat, Aug 25 2007. 12 03 AM IST

Updated: Sat, Aug 25 2007. 12 03 AM IST
Inflation held below the central bank’s target for the 10th straight week, adding to optimism that borrowing costs won’t be raised further anytime soon.
The wholesale price index was 4.10% in the week to 11 August, compared with 4.05% the previous week, the ministry of commerce and industry said in Delhi.
The Reserve Bank of India (RBI), which wants to keep inflation below 5% this year, kept borrowing costs unchanged last month after raising them by 2.25 percentage points since October 2004. Interest rates at a five-year high have led to slowing bank loan growth and reduced demand for manufactured products.
“The central bank’s monetary-tightening cycle is close to a finish,” said Manika Premsingh, an economist at Edelweiss Capital Ltd in Mumbai. “Credit growth has softened and inflation is below RBI’s target level.”
Growth in commercial bank lending to individuals and companies slowed to 23.4% in the week to 3 August compared with 31% a year earlier, the government had said on 17 August.
The yield on India’s 10-year government bonds ended at 7.94% in Mumbai, slightly up from Thursday’s close of 7.93%, according to RBI data.
The government on Friday revised the inflation rate for the week ended 16 June to 4.13% from 4.03. The government revises the inflation rate after a delay of two months on additional price data.
Finance minister P. Chidambaram told Parliament on Friday that the government will cut taxes and raise interest rates further, if required, to contain inflation. India must also step up farm production to contain food prices, he said.
India’s policy of opening its economy to foreign investors has helped spur growth and improve per capita income, the minister said. India must grow as much as 9% each year for the next 25 years to raise incomes and cut poverty, he said.
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First Published: Sat, Aug 25 2007. 12 03 AM IST