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India’s inflation unexpectedly eased in November, a moderation that may not spur the central bank to cut interest rates next week as price gains still remain above its comfort level.
The wholesale-price index rose 7.24 percent from a year earlier, after climbing 7.45 percent in October, the Commerce Ministry said in a statement in New Delhi today. The median of 34 estimates in a Bloomberg News survey was a 7.6 percent gain.
Reserve Bank of India Governor Duvvuri Subbarao may wait for more evidence that inflation is on an easing trend before heeding Finance Minister Palaniappan Chidambaram’s call for cheaper credit to back a government policy overhaul. Growth is slowing in Asia’s third-largest economy as food costs, supply bottlenecks from choked roads and ports and longer-term rupee weakness fanned price pressures and hurt purchasing power.
“We need to see a sustained drop in inflation to say the price situation has become benign,” said Arun Singh, an economist at Dun & Bradstreet Information Services India Pvt. in Mumbai. “The RBI is likely to stay on hold next week given that inflation still holds above its comfort level.”
The yield on the 8.15 percent government bond due June 2022 fell 2 basis points to 8.14 percent. The BSE India Sensitive Index (SENSEX) climbed 0.1 percent, while the rupee gained 0.2 percent to 54.365 per dollar. The currency has declined more than 2.5 percent this quarter.
Wholesale prices rose 8.07 percent in September, more than the 7.81 percent pace estimated earlier, the ministry said today.
The Reserve Bank of India will review interest rates at the final meeting of 2012 on Dec. 18. The central bank will keep the benchmark repurchase rate unchanged at 8 percent, according to 18 of 19 economists surveyed by Bloomberg, with one forecasting a 50 basis-point reduction.
Fuel prices rose 10.02 percent in November from a year earlier, compared with 11.71 percent in October, today’s report showed. Non-food manufactured goods, a measure of core inflation, gained 4.49 percent last month compared with 5.19 percent in October, calculations by Bloomberg showed.
The pace of price increases in Asia’s third-biggest economy remains the fastest among the largest emerging markets. Consumer prices climbed 9.9 percent in November from a year earlier, the highest rate in the G-20 after Argentina.
Subbarao has kept the repurchase rate unchanged since a half-a-percentage point reduction in April. He has resisted calls by Chidambaram for lower borrowing costs as inflation stayed above the central bank’s comfort level of about 5 percent.
The central bank has signaled it may reduce rates next quarter if inflation eases. The central bank may act on rates in January, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said in New Delhi today.
Price gains may slow as spare capacity in the economy builds up, providing room for the central bank to add monetary policy stimulus, the Organization of Economic Cooperation and Development said in its Economic Outlook report on Nov. 27.
“The decline in the rupee, higher fiscal deficit and the second-round impact of diesel price increases are keeping inflation high,” said Upasna Bhardwaj, an economist at ING Vysya Bank Ltd. in Mumbai. “For growth to pick up and inflation to come down, the government needs to do much more than what it has done so far. There are no real concrete actions” to spur growth, she said.
India’s rates are among the highest in Asia, restraining demand for goods and hurting the pace of economic growth. Gross domestic product rose 5.3 percent in the July-September quarter, matching the slowest pace since 2009. Car sales by manufacturers including Maruti Suzuki India Ltd. fell by 8.3 percent in November, the third decline in the past four months.
Prime Minister Manmohan Singh’s government is increasing the pace of economic reforms. India yesterday approved changes to a century-old land law and set up a panel to speed up infrastructure projects.
“ It is too early to say whether the measures have begun to bear fruit, although it is our expectation that they will do so,” Chidambaram said in New Delhi today. Consumer-price inflation remains sticky and “there is no reason at all to become complacent,” he said.
At its last meeting on Oct. 30, the Reserve Bank lowered reserve requirements for lenders to a 36-year-low of 4.25 percent to free up funds for loans.
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