India Inflation Rate Holds Near Lowest in Five Months


India's inflation held near a five- month low, validating the central bank's decision to reduce interest rates to bolster economic growth.

Wholesale prices rose 10.72 percent in the week to Oct. 25 from a year earlier after gaining 10.68 percent in the previous week, the commerce ministry said in a statement in New Delhi today.

The Reserve Bank of India unexpectedly cut its benchmark rate on Nov. 1 for the second time in two weeks, joining policymakers across Asia in lowering borrowing costs to shield their economies from the global financial crisis. Governor Duvvuri Subbarao may reduce interest rates further as declining fuel and food costs ease price pressures, economists said.

For the first time since 1997, India's central bank on Nov. 1 deployed all three of its main tools to shore up growth after inter-bank lending rates climbed to as much as 21 percent. That's improved liquidity in the financial system, with overnight call rates falling to 6.25 percent today.

India's central bank on Oct. 24 reduced its growth forecast to as low as 7.5 percent from 8 percent in the year to March 31, the slowest pace of expansion in four years.

The worldwide credit crunch is prompting investors to sell Indian assets, resulting in record net sales of local equities by global funds of $12.5 billion this year. That saw the benchmark Bombay Stock Exchange Sensitive Index extend this year's losses to 50 percent.

The wholesale price index increased for the first time in seven weeks because of a rise in the prices of rice, pulses, tea, cotton and clothes. The index of primary articles that includes food items rose 11.41 percent, compared with 10.92 percent in the previous week.

Today's inflation rate may be revised in two months, after the government receives additional price data. The commerce ministry increased the inflation rate for the week ended Aug. 30 to 12.38 percent from 12.10 percent.


TradingEconomics.com, Bloomberg.com
11/6/2008 5:34:02 AM