India inflation likely to accelerate in July

New Delhi: India's inflation will accelerate in July, the government's top statistician said, increasing pressure on the central bank to raise interest rates next week for a fourth time in five months.

"The inflation number in July will be higher than in June, in large measure because of what has happened to fuel prices," T.C.A. Anant, 52, said in a July 16 interview in New Delhi, without providing details.

The benchmark wholesale-price index jumped 10.55 per cent in June after climbing 11.23 per cent in April, the most in 19 months, a report showed last week.

Announcement due

Prime Minister Manmohan Singh's government on June 25 allowed state-run refiners including Indian Oil Corp. to raise prices of gasoline and diesel in a bid to cut its oil subsidy and narrow the budget deficit. Governor Duvvuri Subbarao is due to announce the next monetary policy decision on July 27.

"The full impact of the fuel price revision on inflation numbers is yet to be seen," the New Delhi-based Federation of Indian Chambers of Commerce & Industry said in a report on July 17.

"While normalisation of the monetary policy is expected and the Reserve Bank of India would continue to tighten rates in the months ahead, premature and aggressive rollback of easy money policy can jeopardise growth."

Subbarao has increased the reverse repurchase and repurchase rates by three-quarters of a percentage point since mid-March. The reverse repurchase rate is 4 per cent and the repurchase rate is 5.5 percent.

Most of the 14 economists surveyed by the Federation of Indian Chambers expect borrowing costs to be raised by a quarter-point on July 27, according to the report.

India's 10-year bonds gained, snapping a four-day decline, on optimism monsoon rains forecast by the weather office will boost agricultural production and cool food inflation.

Little change

Yields fell two basis points, or 0.02 per centage point, to 7.62 per cent at 1.15pm in Mumbai. The Bombay Stock Exchange's Sensitive Index was little changed at 17,957.47.

Anant, who taught econometrics at the Delhi School of Economics before taking over as the top bureaucrat in the statistics ministry on July 1, said he expects inflation to slow to between 6 per cent and 7 per cent by November.

"I am banking primarily on the fact that I expect better arrivals on the agricultural front," he said.

Fuel costs fan prices

India's inflation rate may exceed government forecasts by year-end as higher fuel costs fan prices, while "premature and aggressive monetary policy action" may restrain economic growth, according to a survey of economists. "The full impact of fuel price revision on inflation numbers is yet to be seen," according to most of the 14 economists surveyed by the Federation of Indian Chambers of Commerce & Industry. "While normalisation of the monetary policy is expected and the Reserve Bank of India would continue to tighten rates in the months ahead, premature and aggressive rollback of easy money policy can jeopardise growth."