At 10.72%, inflation validates RBI steps to bolster growth

At 10.72%, inflation validates RBI steps to bolster growth

New Delhi: Inflation held near a five-month low, validating the central bank’s decision to reduce interest rates to bolster economic growth.

Wholesale prices rose 10.72% in the week to 25 October from a year earlier after gaining 10.68% in the previous week, the commerce ministry said in a statement in New Delhi on Thursday. Economists had expected a 10.49% increase.

Also See WPI Inches Up (Graphic)

The Reserve Bank of India cut its benchmark rate on 1 November for the second time in two weeks, joining policymakers across Asia in lowering borrowing costs to shield their economies from the global financial crisis. Governor D. Subbarao may reduce interest rates further as declining fuel and food costs ease price pressures, economists said.

“The Reserve Bank’s policy signals inflation is no longer a concern and the focus has shifted to lifting the economy," said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd, the local unit of Standard and Poor’s. Declines in energy and commodity prices will further slow inflation to between 5.5% and 6% by March, he said.

For the first time since 1997, India’s central bank on 1 November deployed all three of its main tools to shore up growth after inter-bank lending rates climbed to as much as 21%. That’s improved liquidity with overnight call rates falling to 6.25% on Thursday.

RBI on 24 October reduced its growth forecast to as low as 7.5% from 8% in the year to 31 March, the slowest pace of expansion in four years.

The wholesale price index increased for the first time in seven weeks because of a rise in the prices of rice, pulses, tea, cotton and clothes.

The index of primary articles that includes food items rose 11.41%, compared with 10.92% in the previous week.

Graphics by Ahmed Raza Khan / Mint