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India's inflation at a low, central bank cuts rates
India's annual inflation rate eased to a 4-month low in mid-October and could be in single digits before the end of 2008, giving the central bank room to cut rates further to shore up growth, analysts said on Thursday.
- Reuters
- Published: 23:56 October 30, 2008
New Delhi: India's annual inflation rate eased to a 4-month low in mid-October and could be in single digits before the end of 2008, giving the central bank room to cut rates further to shore up growth, analysts said on Thursday.
The wholesale price index - INWPI=ECI - India's most widely watched price measure, rose 10.68 per cent in the 12 months to October 18, below forecasts for a rise of 10.82 per cent.
It was the lowest annual rate since May 31, the week before a hike in state-set retail fuel prices pushed inflation into double digits.
"Probably, the reading of November 29, we could see inflation touching single digits," said Shubhada Rao, chief economist at Yes Bank.
"The driver of inflation is now ebbing. The rapidly moderating inflation would give Reserve Bank of India (RBI) more elbow room to ease monetary policy."
The policy focus has shifted this month from reining in inflation, which rose as high as 12.91 per cent in early August, to ensuring financial stability and shoring up growth against the spreading financial crisis and the risk of a global recession.
The central bank has this month cut its main lending rate by 100 basis points and slashed the amount of reserves banks are required to hold.
The US Federal Reserve cut its main policy rate to 1 per cent on Wednesday to stave off the credit crunch. China cut rates on Wednesday, Taiwan and Hong Kong followed up with rate cuts yesterday and there was speculation that Japan could follow soon.
At a review last Friday, the RBI left policy unchanged so it could assess the impact of its earlier moves, dashing hopes in some sections of the market that it might act again swiftly to shore up growth.
The RBI did cut its 2008-09 economic growth forecast to 7.5 to 8 percent from around 8 per cent. It expects inflation to be around 7 per cent at the end of the financial year in March 2009.
Eight out of 10 econ-omists polled by Reuters after the policy review expect the RBI to cut its key lending rate by 50 to 200 basis points by the end of the fiscal year and lower banks' reserve requirements to support growth.
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