Indian inflation falls to 14-month low, eases pressure for rate hike
Sunday, 1 July 2007
NEW DELHI, June 30 (AFP): India's inflation has fallen to a 14-month low helped by lower food prices, data yesterday showed, easing pressure for further interest rate hikes.
The wholesale price index, India's closely watched cost-of-living monitor, showed inflation slowed to a lower-than-expected 4.03 per cent for the week ended June 16, from 4.28 per cent a week earlier and 5.5 per cent a year ago.
The latest figure was comfortably within the central bank's medium-term inflation target of 4.0 to 4.5 per cent.
"It's a positive surprise," said D K Joshi, principal economist at leading Indian credit rating agency Crisil. "The central bank can now afford to adopt a wait-and-watch policy and refrain from raising rates for the timebeing."
"It is possible that the impact of the central bank's interest rate rises have still not been fully felt," he added.
The central bank has hiked benchmark rates nine times since late 2004, driving borrowing costs to five-year highs. Its next monetary policy review is on July 31.
In early February, inflation hit a more than two-year high of 6.73, sparking warnings that the economy, which expanded by a scorching 9.4 per cent in the 2006-07 financial year, could be overheating.
The latest data came as welcome news to the Congress-led government as inflation has emerged as a major political issue because of the burden it imposes on India's millions of poor households.
Economists had been expecting inflation to fall to around 4.13 per cent this week. Inflation has been declining steadily over the past two months.
The newest drop was driven by a fall in food prices, such as pulses and vegetables, and some manufactured goods as well as by a higher base effect from a year ago.
The government has cut wheat and lentil import taxes and duties on steel and fuel in its bid to cut prices.
Earlier in the week, Finance Minister P Chidambaram said inflation-fighting measures and a sharp appreciation of the Indian rupee which has been riding at nine-year highs against the dollar had helped subdue prices.
More rate rises might not be needed if the trend continued, he said.
Economists warned that the central bank would not be able to lower its guard against inflation as the economy was operating at close to capacity and there was still a risk of overheating.
The wholesale price index, India's closely watched cost-of-living monitor, showed inflation slowed to a lower-than-expected 4.03 per cent for the week ended June 16, from 4.28 per cent a week earlier and 5.5 per cent a year ago.
The latest figure was comfortably within the central bank's medium-term inflation target of 4.0 to 4.5 per cent.
"It's a positive surprise," said D K Joshi, principal economist at leading Indian credit rating agency Crisil. "The central bank can now afford to adopt a wait-and-watch policy and refrain from raising rates for the timebeing."
"It is possible that the impact of the central bank's interest rate rises have still not been fully felt," he added.
The central bank has hiked benchmark rates nine times since late 2004, driving borrowing costs to five-year highs. Its next monetary policy review is on July 31.
In early February, inflation hit a more than two-year high of 6.73, sparking warnings that the economy, which expanded by a scorching 9.4 per cent in the 2006-07 financial year, could be overheating.
The latest data came as welcome news to the Congress-led government as inflation has emerged as a major political issue because of the burden it imposes on India's millions of poor households.
Economists had been expecting inflation to fall to around 4.13 per cent this week. Inflation has been declining steadily over the past two months.
The newest drop was driven by a fall in food prices, such as pulses and vegetables, and some manufactured goods as well as by a higher base effect from a year ago.
The government has cut wheat and lentil import taxes and duties on steel and fuel in its bid to cut prices.
Earlier in the week, Finance Minister P Chidambaram said inflation-fighting measures and a sharp appreciation of the Indian rupee which has been riding at nine-year highs against the dollar had helped subdue prices.
More rate rises might not be needed if the trend continued, he said.
Economists warned that the central bank would not be able to lower its guard against inflation as the economy was operating at close to capacity and there was still a risk of overheating.