By Kartik Goyal
Jan. 9 (Bloomberg) -- India’s inflation slowed to a 10- month low, giving policy makers room to implement further measures to stimulate economic growth without fanning prices.
Wholesale prices rose 5.91 percent in the week to Dec. 27 from a year earlier after gaining 6.38 percent the previous week, the commerce ministry said in New Delhi today. Economists expected an increase of 6.14 percent.
Governor Duvvuri Subbarao has lowered the Reserve Bank of India’s benchmark interest rate four times since October to protect Asia’s third-largest economy from a deepening global recession. Lower oil prices may allow for even more cuts from the central bank, which is due to release its next quarterly policy statement on Jan. 27.
“We expect further monetary easing over the next three months,” said Robert Prior-Wandesforde, senior Asia economist at HSBC Group Plc in Singapore. “India has not been able to escape the aftershocks of the global financial crisis.”
Bonds were unchanged, with the yield on the 8.24 percent note due April 2018 holding at 6.04 percent as of 12:02 p.m. in Mumbai, according to the central bank’s trading system.
Growth in India’s economy has slowed for two straight quarters, and the government is forecasting an expansion of 7 percent this fiscal year, the weakest since 2003. Growth may ease to 6.2 percent in the year from April 1, according to HSBC.
India’s central bank has responded to weakening growth by reducing its benchmark repurchase rate by 350 basis points to 5.5 percent in the past four months. The proportion of deposits that lenders need to set aside as cash reserves has also been cut to 5 percent from 9 percent.
Global Recession
Prime Minister Manmohan Singh’s government, facing elections before May, is also spending more to shield India from the world economy’s worst crisis since the Great Depression.
Singh’s administration on Jan. 2 unveiled a second stimulus package to inject capital into banks and allow overseas investors to double purchases of debt. An initial plan released on Dec. 7 allocated an additional 200 billion rupees ($4 billion) in spending in the year ending March 31.
India’s $1.2 trillion economy may expand “close to” 7.5 percent this fiscal year, aided by the extra government spending, Trade Minister Kamal Nath said in an interview with Bloomberg Television in Paris yesterday.
“The stimulus that we have provided for generating domestic demand will be able to address the slowdown to some extent,” Nath said.
‘Further Easing’
The government should have more room to adopt measures to help growth as inflation is unlikely to be a problem for at least another six to eight months, according to Montek Singh Ahluwalia, the prime minister’s top economic adviser.
“Slowing inflation may prompt policy makers to favor further monetary easing,” said Rajeev Malik, an economist at Macquarie Group Ltd. in Singapore. “The Reserve Bank will continue with its aggressive monetary easing by cutting the rates by another 100 basis points in the current quarter.”
The index of manufactured price inflation, with a 64 percent weight in the inflation basket, fell 0.3 percent in the week to Dec. 27, from a decline of 0.15 percent in the previous week, today’s report showed. Prices of fruits, vegetables, eggs, edible oil, clothing and chemicals declined.
Inflation has eased amid weaker oil prices. Crude costs have tumbled more than 50 percent from a year ago, allowing the Indian government to cut retail prices of gasoline and diesel on Dec. 5 by as much as 10 percent.
Today’s inflation rate may be revised in two months, after the government receives additional price data. The commerce ministry today revised the inflation rate for the week ended Nov. 1 to 8.70 percent from 8.98 percent.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.
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