Indian inflation accelerated to a three-month high in June, threatening to curb scope for a further interest-rate cut as rupee weakness stokes import costs.
The wholesale-price index rose 4.86 percent from a year earlier, exceeding May’s 4.7 percent climb, a Commerce Ministry statement showed in New Delhi today. The median estimate in a Bloomberg News survey of 30 analysts was 4.94 percent. The Reserve Bank of India’s threshold level is about 5 percent.
The rupee’s drop of about 8 percent against the dollar in 2013 has made imports including oil more expensive and threatens to fan wider price pressures even as economic growth falters. The Reserve Bank will leave borrowing costs unchanged on July 30 for a second month after retail inflation quickened toward 10 percent, State Bank of India and Nomura Holdings Inc. predict.
“I don’t think the Reserve Bank can afford any cuts at this time due to the levels of consumer prices and the rupee’s decline,” said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai.
The currency, which touched an all-time low of 61.2125 per dollar on July 8, depreciated 0.4 percent to 59.8838 as of 12:50 p.m. in Mumbai. The S&P BSE Sensex index gained 0.3 percent, while the yield on the 8.15 percent bond maturing June 2022 rose to 7.67 percent from 7.65 percent on July 12.
Inflation remains “high” even after easing somewhat and controlling it is the priority, Reserve Bank Governor Duvvuri Subbarao said last week.
Indian Oil Corp., the nation’s biggest refiner, raised fuel prices in June and July, citing the rupee.
The currency was the world’s worst performer last month, hurt by a record current-account deficit. The possibility of reduced U.S. monetary stimulus has also sapped demand for assets in emerging markets from Brazil to India.
Subbarao lowered the central bank’s benchmark repurchase rate by 25 basis points in January, March and May each to 7.25 percent to bolster Indian expansion, which slowed to a decade low in the financial year ended March.
Industrial output unexpectedly shrank in May while consumer-price inflation accelerated to 9.87 percent in June, signs that Asia’s third-largest economy continues to struggle as exports drop, domestic demand moderates and supply bottlenecks contribute to price increases.
Food prices climbed 9.74 percent in June from a year earlier, today’s report showed. Fuel and power rose 7.12 percent. Non-food manufactured goods prices, a measure of core inflation, advanced 2.1 percent after a 2.35 percent gain in May, according to Bloomberg calculations based on the data.
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