Business | Economy
Indian inflation near fastest rate in over 13 years
India's inflation held near the fastest in more than 13 years, stoking speculation the central bank will raise borrowing costs next week.
- Bloomberg
- Published: 23:37 July 24, 2008
New Delhi: India's inflation held near the fastest in more than 13 years, stoking speculation the central bank will raise borrowing costs next week.
Wholesale prices rose 11.89 per cent in the week to July 12, after gaining 11.91 per cent in the previous week, the commerce ministry said in New Delhi yesterday. Economists had expected a 12.03 per cent increase.
Prime Minister Manmohan Singh won a key parliamentary vote this week, securing continued tenure for the government and time to contain the fastest inflation since 1995.
Rising prices may force the Reserve Bank of India to increase interest rates for the third time in less than two months at its July 29 meeting.
"The central bank will raise rates as inflation remains way above its comfort zone," said Robert Prior-Wandesforde, an economist at HSBC Group Plc in Singapore. "We are looking for the headline rate to hit 15 per cent by the end of fiscal 2008."
Benchmark
The Reserve Bank raised its benchmark interest rate twice in June, lifting it to a six-year high of 8.5 per cent to contain inflation. It also increased the cash reserve ratio in a phased manner to 8.75 per cent, the last rise coming into effect July 19.
India will rely on monetary measures to tackle inflation, which is accelerating due to the cost of imported oil and other commodities, Finance Minister Palaniappan Chidambaram said yesterday.
"Anything that is imported adds to our inflation and the answer is to take monetary measures," he said.
Rising energy and commodity costs have stoked inflation across the Asia-Pacific region. Consumer prices in Singapore rose 7.5 per cent in June from a year earlier, holding at a 26-year high for a third straight month, a report showed yesterday.
Singh had to demonstrate his strength in parliament after his communist allies withdrew support on concern a nuclear accord with the US would weaken the nation's foreign policy. Singh got 275 votes in his favour while 256 went against him in the confidence motion on July 22.
Faster inflation and record-high borrowing costs are squeezing consumer spending and hurting profits at companies such as Maruti Suzuki India Ltd., the maker of half the cars sold in India. Maruti's net income declined 6.6 per cent in the quarter ended June, the company said July 21.
"Our effort is to control inflation without hurting the rate of growth and employment," Prime Minister Singh said this week.
India needs to grow at least 10 per cent a year to get rid of chronic poverty, ignorance and disease which still afflicts millions of people, Singh told parliament.
India's central bank expects the economy to grow as much as 8.5 per cent in the current fiscal year, slower than the 9 per cent pace of the previous 12 months.
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