Arab Today, arab today inflation up 755 rbi expected to cut rates
Last Updated : GMT 18:31:50
Arab Today, arab today
Arab Today, arab today

Inflation up 7.55%, RBI expected to cut rates

Arab Today, arab today

Arab Today, arab today Inflation up 7.55%, RBI expected to cut rates

New Delhi - Arabstoday

India’s inflation accelerated in May, adding to an avalanche of harsh data for the country’s beleaguered leaders and making it harder for the central bank to revitalise the flagging economy with a widely expected interest rate cut next week. The 7.55% rise in the wholesale price index (WPI) over a year earlier came as both food and fuel price pressures intensified. The outcome matched expectations in a poll, but an upward revision to the March number to a 2012 high of 7.69% raised worries of greater pressure to come. “The most important negative is the massive revision to the March number, which means the May headline inflation may be revised upwards” said Rajeev Malik, an economist with Singapore-based brokerage CLSA. “I don’t think this data, especially the revision, gives much breathing space to the Reserve Bank of India.” Most analysts expect the RBI to cut its repo rate to 7.75% from 8.00% when it meets on Monday, following a 50 basis point cut in April. A slump in economic growth in the first quarter to a nine-year low of 5.3% will trump immediate concerns about inflation, they said. A drop in core inflation, which excludes food and fuel, eases concerns about cutting rates, they said. The central bank might also cut required levels of bank reserves as well. “Growth is in stagnation, especially manufacturing. The loss of momentum is very, very perceptible,” said Shubhada Rao, chief economist at Yes Bank in Mumbai. But a 3 basis-point rise in India’s benchmark 10-year bond yield to 8.32% signalled some expectations that more aggressive policy easing was unlikely. The one-year OIS rate rose 4 basis points to 7.53%. Bank shares pulled back from an earlier rally to push down India’s main stock index 0.9%. India’s inflation is higher than major industrialised economies and its peers in the so-called BRIC grouping, which includes Brazil, Russia, and China. It is one reason Prime Minister Manmohan Singh has balked at cutting diesel subsidies blamed for the government’s wide fiscal deficit. New Delhi is under increasing pressure to reform after the January-March slide in growth. Finance Minister Pranab Mukherjee said he was “confident” headline inflation would remain between 6.5-7.5% throughout the fiscal year 2012/13, possibly suggesting he is comfortable with that range. India cautiously raised petrol prices last month but has not tackled more politically sensitive and subsidised fuels, such as diesel. Speaking on the sidelines of an Opec meeting in Vienna, Oil Minister Jaipal Reddy blamed high global oil prices for weak growth in India, which is a net importer of crude. Adding to India’s economic gloom, provisional trade data yesterday showed exports slumped more than 4% in May from a year earlier, the second fall in three months. The trade deficit widened to $16.3bn. “We are passing through difficult times,” senior trade ministry official Anup Pujari told reporters. The founder of one of India’s leading IT firms this week berated the government as “without a leader,” Standard & Poor’s warned the country could be downgraded to junk status because of political inaction, and data on Tuesday showed India’s industrial output growth flatlined in April. The WPI showed India’s inflation quickened from 7.23% in April, keeping it near the highest levels this year. Core inflation dropped to 4.85%, down by about a percentage point from February. Economists calculate core inflation from the data. “Since core inflation is still below 5%, I would expect RBI to cut rates by 25 basis points as that is the key number,” said A Prasanna, an economist at ICICI Securities Primary Dealership in Mumbai. India’s repo rate of 8.00% is the highest central bank policy rate among major economies in Asia. One reason behind the slowdown in India’s economy was a series of 13 rate rises between March 2010 and October 2011 to quell inflation, which nevertheless remains relatively high.from gulf times.

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