New Delhi: India's inflation rate held at a 17-month high in March, increasing pressure on the central bank to raise borrowing costs next week.
The benchmark wholesale-price index stood at 9.90 per cent after a 9.89 per cent gain in February, the commerce ministry said in a statement in New Delhi yesterday. The median forecast of 20 economists in a Bloomberg News survey was for a 10.37 per cent increase last month.
Central bank Governor Duvvuri Subbarao, due to unveil the monetary policy statement on April 20, may tighten interest rates to curb price gains, finance ministry officials said this week. Inflation is at risk of flaring up in the fastest-growing major economy after China on rising consumer demand, evidenced by factory output exceeding 15 per cent for a third month in February.
Revised numbers
"It's a very high inflation reading and we'll see a double- digit number when the final revised numbers come in," said Sujan Hajra, chief economist at Anand Rathi Financial Services in Mumbai. Hajra expects Subbarao to raise rates by 25 basis points on April 20.
The commerce ministry revised the inflation data for January to 9.44 per cent from 8.56 per cent, yesterday's report showed.
Subbarao raised interest rates for the first time in almost two years on March 19, a month before the scheduled monetary policy announcement, as the inflation rate exceeded the central bank's estimate of 8.5 per cent by March 31.
The governor increased the reverse repurchase rate to 3.5 per cent from a record-low 3.25 per cent and the repurchase rate to five per cent.
The central bank may set the reverse repurchase rate to as high as five per cent, Saumitra Chaudhuri, a member of the Prime Minister's Economic Advisory Council said in an April 8 interview, without giving a time frame.
"I share the views of some experts that some tightening is required," R. Gopalan, secretary for financial services in the Ministry of Finance, said in New Delhi on April 13.
The central bank may take "some action" in case inflation accelerates, Kaushik Basu, chief economic adviser in the finance ministry, said in Mumbai on the same day.
Asia Pacific countries including India and China need to raise interest rates to prevent inflation from accelerating and avert formation of asset bubbles as their economies recover from the global recession, the Asian Development Bank said in an April 13 report.
Prime Minister Manmohan Singh's government is under pressure from opposition parties including the Communist Party of India (Marxist) and the Samajwadi Party to slow inflation in a country where the World Bank estimates almost three-quarters of its 1.2 billion people live on less than $2 (Dh7.34) a day.
"We think the RBI is likely to maintain its hawkish stance on inflation," Rahul Bajoria, an economist at Barclays Capital in Singapore, said before the report. He expects interest rates to be raised by 50 basis points next week.
