Bloomberg News

India’s Inflation Slows Less Than Economists Estimates

April 16, 2012

India’s inflation slowed less than estimated in March as food and fuel prices rose, limiting room for cuts in interest rates to bolster a weakening economy.

The benchmark wholesale-price index advanced 6.89 percent from a year earlier, the commerce ministry said in a statement in New Delhi today, compared with a 6.95 percent climb in February and the median 6.65 percent estimate in a Bloomberg News survey of 33 economists.

The Reserve Bank of India, which reviews policy tomorrow, has signaled readiness to lower borrowing costs for the first time since 2009 to boost domestic demand as Europe’s debt crisis and a slowdown in China dim the global outlook. It has also flagged the risk of a revival in price pressures because of the rupee’s slide, costlier oil and the fiscal gap.

“Inflation worryingly could be sticky, and the recent comments by the RBI suggest it is growing more and more concerned by downside risks,” said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. The central bank will move “gradually” and cut no more than 25 basis points at any one meeting and 100 basis points in total in the year through March, he said.

Rupee, Bonds

India’s rupee, which tumbled 16 percent last year as growth decelerated and the nation’s trade gap widened, fell 0.7 percent to 51.665 per dollar as of 12:09 p.m. local time. The BSE India Sensitive Index was little changed. The yield on the 8.79 percent note due November 2021 advanced 1 basis point, or 0.01 percentage point, to 8.46 percent from 8.45 percent before the release.

Seventeen of 25 economists in a Bloomberg News survey expect the monetary authority to reduce borrowing costs by 0.25 percentage point to 8.25 percent on April 17, while three foresee a 50 basis points cut.

Five predict India will keep rates unchanged for a fourth straight meeting, joining neighbors from Pakistan to Indonesia in leaving them on hold as it juggles growth risks with price pressures.

While inflation has eased from more than 9 percent for most of 2011, it remains the fastest among the so-called BRIC group of biggest emerging economies that also includes Brazil, Russia and China.

Food, Fuel Prices

The price of vegetables surged 30.57 percent in March from a year earlier, today’s report showed. Egg, meat and fish costs climbed 17.71 percent. Fuel and power prices rose 10.41 percent. Manufacturing inflation slowed to 4.87 percent from 5.75 percent in February.

Central bank Governor Duvvuri Subbarao has already reduced the amount of deposits lenders must set aside as reserves twice in 2012 to alleviate a cash squeeze that threatens growth.

Asia’s third-largest economy expanded 6.1 percent in the fourth quarter, close to a three-year low, hurt by declining investment and moderating consumer spending after the Reserve Bank raised rates by a record 3.75 percentage points from March 2010 to October last year to fight inflation.

Passenger car sales grew at the slowest pace in three years in the 12 months through March as costlier credit crimped demand for products by automakers such as Maruti Suzuki India Ltd., maker of almost half the cars sold in the country.

Singh’s Challenge

Prime Minister Manmohan Singh’s government is facing one of the most challenging periods since taking office in 2004, as it grapples with fiscal and trade gaps and depressed industrial output.

In the budget on March 16, the administration announced record borrowing needs to plug a fiscal shortfall estimated at 5.1 percent of gross domestic product in 2012-2013.

The excess of imports over exports in 2011-2012 was about $185 billion, Commerce Minister Anand Sharma said last week. A report on April 12 showed industrial output rose a less-than-estimated 4.1 percent in February from a year ago.

Policy reversals have further hindered Singh’s economic agenda, including the suspension in December of plans to open India’s retail industry to foreign companies such as Wal-Mart Stores Inc.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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