Inflation holds at 5-yr low before rate review

Inflation holds at 5-yr low before rate review

New Delhi: Inflation held steady at a five-year low in mid-October, but analysts said the risk that record oil prices would feed through to the economy meant the central bank would hold interest rates steady at a review next week.

The wholesale price index rose 3.07% in the 12 months to 13 October, matching the previous week’s rise which was the smallest in five years, government data showed on Friday.

The rate, which was higher than a median forecast of 2.97% in a Reuters poll, meant inflation has been below the central bank’s fiscal year target of 5% for 19 weeks.

“I don’t see any changes based on this number. Inflation has ceased to be a policy variable for the time being," ING Vysya Bank economist Harish Menon said.

Analysts said the global environment was still inflationary, with oil prices hitting a record high above $92 a barrel on Friday, and that would keep the central bank watchful.

“With overhang of high oil prices, inflation concerns have not receded. We expect RBI to remain vigilant on inflation and maintain its stance in the forthcoming policy," A. Prasanna, analyst at ICICI Securities, said.

Financial markets were little moved by the data. The 10-year bond yield edged up to 7.82% in afternoon trade, while the partially convertible rupee rose slightly to 39.485/495 per dollar from before the data.

The wholesale price index is more closely watched than the consumer price index, which is published monthly, because it covers a higher number of products and is published weekly.