Inflation rate eases to lowest since 2002

Inflation rate eases to lowest since 2002

New Delhi: India’s inflation rate eased to the lowest level since 2002, as interest rates at a five-year high began to tame consumer demand for cars and homes.

Wholesale prices rose 3.32% in the first week of September from a year earlier, down from a 3.52% gain in the previous week, the ministry of commerce and industry said in a statement in New Delhi on Friday.

Inflation is also slowing as adequate rains increase supplies of fruits, vegetables and wheat. Still, record foreign investment, and rupee sales by the central bank aimed at stemming currency gains, are flooding the economy with cash and threaten to rekindle price gains.

“If foreign investment flows continue at such elevated levels, then the central bank will have to resort to another increase in the cash reserve ratio (CRR)," said Sujan Hajra, an economist at Anand Rathi Securities Ltd in Mumbai. “Excess liquidity in the system can stoke inflation."

The Reserve Bank of India (RBI) has been relying on CRR, or the proportion of deposits lenders need to place with it as reserves, to curb bank lending.

Governor Yaga Venugopal Reddy’s next monetary policy statement is due on 30 October.

The yield on the benchmark 10-year government bond held at 7.83% after the release of the inflation data, which was more than analysts’ estimate of 3.28%.

India’s currency has strengthened beyond 40 per dollar for the first time in nine years amid unprecedented overseas investment in domestic shares.

RBI has injected rupees worth $43.1 billion (Rs1.72 trillion) in the nine months to July, almost three times the amount in the previous nine months, to prevent the currency from gaining more.

Overseas investors bought a net Rs2,485 crore of Indian shares on 19 September, nine times the average of the last six months.

Foreign investors are buying shares and building factories in India to take advantage of the nation’s record growth, which is second only to China among the world’s biggest economies.

Consumer prices in China surged 6.5% in August, the fastest rate in 10 years, led by food. Of the 20,000 households surveyed in a central bank quarterly report released on Thursday, a record 61.3% said they expect inflation to quicken in the fourth quarter.

China’s central bank last week raised interest rates for a fifth time this year. It has also ordered lenders to set aside larger reserves on seven occasions since January and sold bills to soak up cash from the financial system.

India on Friday revised the inflation rate for the week ended 14 July to 4.76% from 4.41%. The government revises the inflation rate after a delay of two months on additional price data.