Business | Economy
India's inflation declines to 8%
India's inflation rate fell to a seven-month low, making it more likely the central bank will add to three interest-rate cuts in less than two months to shore up a slowing economy. Bonds rose.
- Bloomberg
- Published: 23:41 December 11, 2008
New Delhi: India's inflation rate fell to a seven-month low, making it more likely the central bank will add to three interest-rate cuts in less than two months to shore up a slowing economy. Bonds rose.
Wholesale prices increased eight per cent in the week to November 29 from a year earlier after gaining 8.4 per cent in the previous week, the commerce ministry said in New Delhi yesterday. That matched the expectations of economists surveyed by Bloomberg.
Indian policymakers have lowered interest rates and taxes and boosted government spending to prop up economic growth. Asia's third-largest economy will face a period of "painful adjustment" as the world sinks into recession, the central bank said last week.
"The risks are clearly toward even more aggressive cuts as growth continues to falter and inflation declines rapidly," said Tushar Poddar, an economist at Goldman Sachs Group Inc. in Mumbai. "Inflation is on a downward trajectory and we expect it to continue to fall sharply going into next year."
Bonds rose after the inflation report was released. The yield on the 8.24 per cent note due April 2018 dropped 11 basis points to 6.52 per cent in Mumbai. A basis point is 0.01 percentage point.
The Reserve Bank of India on December 6 reduced its benchmark repurchase rate by one percentage point to 6.5 per cent, the third cut since October. On the following day, the government announced a $4 billion (Dh14.71 billion) economic stimulus package.
The global recession is driving down prices of oil and other commodities, slowing inflation across Asia and prompting the region's central banks to cut borrowing costs. China lowered its key lending rate by the most in 11 years to 5.58 per cent on November 26. Chinese consumer prices rose 2.4 per cent in November from a year earlier, the slowest in two years.
Lower commodity prices and slowing domestic demand have contributed to a faster-than-expected reduction in inflation, the Reserve Bank of India said in a statement on December 6. Global crude oil prices have tumbled 70 per cent after reaching a record high of $147.27 a barrel in July. India relies on overseas crude to meet three-quarters of its needs.
India's inflation has declined from a 16-year high of 12.91 per cent in August. Wholesale-price growth may slow to 7 per cent by March 31, the central bank said October 24.
"We will review our inflation forecast in the next monetary policy," Reserve Bank Governor Duvvuri Subbarao said in Kolkata yesterday. "The developments so far will be reflected in our assessment."
The inflation rate in the week to November 29 fell as fuel price growth slowed to 4.48 per cent from 5.28 per cent in the previous week, yesterday's report showed. Prices of manufactured goods rose 7.86 per cent, lower than the 8.15 per cent rise the previous week.
Inflation may ease further after the government on December 5 reduced retail fuel prices. The price of gasoline was cut by Rs5 a litre (Dh0.37) and diesel by Rs2 a litre.
Growth in India's $1.2 trillion economy is weakening as recessions in the US, Europe and Japan crimp demand for the nation's exports. India's overseas sales fell 12.1 per cent in October, the first decline in seven years.
South Asia's biggest economy may grow 7.5 per cent in the year ending March 31 after expanding nine per cent or more annually in the previous three years, the central bank said.
India's economy expanded 7.6 per cent in the three months to September 30 from a year earlier.
More help needed
State Bank of India, the nation's biggest bank, said yesterday there was some concern the economy would need stimulus beyond rate cuts and extra government spending announced last weekend.
Chairman O.P. Bhatt's comments followed remarks from the central bank governor on Wednesday that India's growth projections for the current financial year ending in March 2009 may be cut and 2009-10 may be a "more difficult year". "There are still concerns the economy may require more," Bhatt said in New Delhi, although he did not elaborate.
The head of a banking sector body said banks would consider interest rate cuts for housing and small and medium-sized firms that have been hit by the credit crisis. "We will see what relief can be given. It can entail interest rates also," said T.S. Narayanasami, head of the Indian Banking Association.
- Reuters
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