inflation at 10 month high rate cut hopes fade
Last Updated : GMT 16:22:18
Arab Today, arab today
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Inflation at 10 month high, rate cut hopes fade

Arab Today, arab today

Arab Today, arab today Inflation at 10 month high, rate cut hopes fade

New Delhi - Arabstoday

India’s inflation accelerated to a 10-month high, hitting 7.81% in September, data showed yesterday, diminishing chances of an interest rate cut to jumpstart a sharply weaker economy. The September figure was a blow to business leaders who have pressed India’s hawkish central bank to cut rates to boost growth which has slowed dramatically. “This is not a good number,” IHS Global Insight economist Jyoti Narasimhan said, adding the Reserve Bank of India has “repeatedly maintained its primary mandate is containing inflation so it will now likely defer any rate cuts.” The Wholesale Price Index, the closest-watched inflation gauge in Asia’s third-largest economy, rose 7.81% year-on-year in September, outpacing market forecasts of a 7.7% rise. Inflation, spurred by a 14% hike in state-controlled diesel prices to lower fuel subsidies that have fed a bloated fiscal deficit, was up from the previous month’s 7.55% and was the highest since last November. Central banks in developing countries from China to Brazil, whose inflation is below India’s, have eased borrowing costs to try to ring-fence their economies from the effects of the eurozone debt crunch. But the RBI, which meets on October 30 to review rates, has kept its focus on fighting inflation which remains stubbornly above its 5% comfort level and has created huge hardship for the nation’s teeming poor. Most analysts predict the bank will keep rates on hold at least until December - and perhaps longer until inflation shows a decisive downward trend. The bank last cut rates in April after raising borrowing costs 13 times. “Headline inflation rose more than expected,” said HSBC’s India chief economist Leif Eskesen. “This ought to make the bank careful about easing until inflation risks have receded sufficiently.” The disappointing data comes after Prime Minister Manmohan Singh’s Congress government, facing elections in 18 months, recently introduced a string of market-opening steps in a bid to boost growth. Powerful government economic mandarin Montek Singh Ahluwalia said yesterday he was hopeful the measures would lead to an economic “turnaround” in the second half of the financial year to March 2013. The Planning Commission deputy chairman estimated growth at around 5.5% in the first half and said “the second half will be better, somewhere around 6%” - but still far below stellar double-digit levels in recent years. “The government is back in action” on reforms while an up-tick in industrial output “is an example of deceleration having been arrested,” he said, and urged global ratings agencies to take India off their “negative watch.” Standard & Poor’s said last week there was “at least a one-in-three likelihood” of a downgrade of India’s sovereign credit rating within the next 24 months from investment grade to junk. “I don’t believe there’s an iota of information that would suggest taking a negative step,” said Ahluwalia. “It is true that when you raise a key price like diesel, in the short run you have an uptick, but the idea that six months later the inflationary situation will be worse as a result of this is not true,” Ahluwalia said in Mumbai. A few economists think WPI inflation will fall, arguing that weak demand will offset fuel price pressures. Finance ministry officials have said recent fiscal reforms have given the RBI room to cut interest rates by at least 25 basis points, and Finance Minister P Chidambaram gave the RBI a further prod on Saturday, when he called for it to take “calibrated risks” to support the economy. “Pressure is mounting on the central bank for a quid-pro-quo move after the government initiated reforms to correct the fiscal imbalances and we expect consensus to be split as we approach the end-October review,” said Radhika Rao, economist at Forecast Pte in Singapore.

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