Arab Today, arab today india\s inflation cools but rate cut unlikely
Last Updated : GMT 05:52:22
Arab Today, arab today
Arab Today, arab today

India\'s inflation cools but rate cut unlikely

Arab Today, arab today

Arab Today, arab today India\'s inflation cools but rate cut unlikely

New Delhi - AFP

India\'s inflation cooled to a more than three-year low in May, data showed Friday, but the rupee\'s plunge will likely stall any interest rate cut to kickstart the ailing economy. The Wholesale Price Index, India\'s most closely watched inflation gauge, fell to 4.7 percent in May on an annual basis, down from its 4.89 percent level in April. The broadly based wholesale price inflation reading, the lowest since late 2009, was well below market forecasts of a 4.9 percent rise. But a rupee trading just above lifetime lows, a ballooning current account deficit and the more narrowly based retail inflation index at near double digits made a rate cut at Monday\'s central bank meeting unlikely. Monetary authorities have made it \"crystal clear that while lower wholesale price inflation is a necessary condition for further rate reductions, it is not sufficient\", said Credit Suisse economist Robert Prior-Wandesforde. \"We doubt this (inflation fall) will persuade the central bank to cut the repo rate\" from its current level of 7.25 percent, Prior-Wandesforde said. Business leaders want the central bank to slash interest rates to spur the economy, which grew last year at five percent, a decade low. \"Both the government and monetary authorities need to focus on boosting economic growth as it is the only sound solution,\" said D.S. Rawat, secretary general of the Association of Chambers of Commerce and Industry of India. But more rate cuts could lead to an even weaker rupee, pushing up the cost of imports and widening India\'s current account deficit, which hit a record 6.7 percent of gross domestic product in the October to December quarter. The central bank has often cited the current account deficit as a potential brake on monetary easing. And the Indian currency\'s slide to a record low of 58.98 rupees to the dollar earlier in the week has sparked fears it could prompt a resurgence in inflation as imports become more costly. The Indian unit, which just three months ago was trading in the mid-40 rupee range to the dollar, was at 57.80 to the greenback Friday. Finance Minister P. Chidambaram told reporters Friday India\'s economic problems cannot be solved by \"quick-fixes\" and promised the government will announce steps over the next two months to boost investment, economic growth and the rupee. Emerging market currencies across the world have been hit by speculation the US Federal Reserve will cut back on economic stimulus that has fuelled investment flows into developing nations. But the currencies of India and Indonesia, which both run current account deficits -- importing more than they export -- have been among the worst affected. \"US Federal Reserve Chairman Ben Bernancke\'s comment that he may slow down on bond purchases as the US economy recovers saw over $2 billion flying out (of India) in a matter of 10 days,\" noted Jamal Mecklai, head of Mumbai-based Mecklai Financial, an investment advisory company. India\'s central bank has cut its main lending rate three times since the start of 2013 as it seeks to boost the economy. But with downward pressure on the rupee likely to persist, \"India\'s central bank will find it hard to cut rates anytime soon\", said Capital Economics\' chief Asia economist Mark Williams.

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