India's inflation rate flat, raising rate cut hopes

GMT 13:09 2014 Monday ,15 December

Arab Today, arab today India's inflation rate flat, raising rate cut hopes

Reserve Bank of India governor Raghuram Rajan's aggressive
New Delhi - AFP

 India's wholesale inflation fell to a five-and-a-half-year low driven by ongoing falls in fuel and food prices, data showed Monday, boosting expectations of an interest rate cut early next year.
The Wholesale Price Index, India's inflation measure with the biggest basket of goods, slipped to a lower-than-expected zero percent in November from a year earlier, the lowest rate since July 2009, official data showed.
The latest WPI compares with a five-year-low of 1.77 percent recorded in October, and was below analysts' estimates of about 1.1 percent.
Analysts said Reserve Bank of India governor Raghuram Rajan's aggressive policies to curb price rises appeared to be paying off.
The sharp fall in global crude oil prices also helped keep inflation in check in India, which imports most of its fuel.
"This means the Reserve Bank of India (RBI) will be under pressure to cut rates," said Arun Singh, senior economist at credit data firm Dun & Bradstreet.
Figures released on Friday showed consumer inflation slowed to 4.38 percent, a three-year low, while industrial output contracted, also putting pressure on the central bank to cut rates.
That inflation figure was below the RBI's six-percent goal for January 2016, and down sharply from double-digit inflation last year.
Finance Minister Arun Jaitley is hoping for a cut in borrowing costs to boost investment and stimulate the faltering economy, which is mired in the longest slowdown in a quarter of a century.
But even with inflation falling, the RBI has resisted appeals to loosen monetary policy.
Rises in prices of food especially have caused huge hardship for India's 1.2 billion population, of which nearly a quarter live in severe poverty, according to the World Bank.
Rajan, a former chief economist of the IMF, said earlier this month a cut in its benchmark repo rate was "premature", but indicated a reduction was very likely in early 2015 if inflation continued to fall.
"The world has not changed between now and the last RBI policy meeting. The fall in inflation was expected," said Ashutosh Datar, economist at IIFL Holdings Ltd, who predicted the RBI will wait for two more months of inflation data before acting.
India's economy grew by 4.7 percent last year and the RBI expects it to expand by 5.5 percent this year -- far below the near double-digit growth needed to generate employment for tens of millions of new entrants to the job market.


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