By Cherian Thomas
March 28 (Bloomberg) -- India's inflation accelerated to a 13-month high,
constraining the central bank's ability to cut interest rates to arrest an
economic slowdown.
Wholesale prices rose 6.68 percent in the week ended March 15 from a year
earlier, faster than the previous week's 5.92 percent, the Ministry of
Commerce and Industry said in New Delhi. A Bloomberg survey of 14
economists
forecast a 5.96 percent gain.
JPMorgan Chase & Co. and HSBC Group Plc in the past week reversed their
earlier forecasts of a reduction in rates by July, betting the central
bank
will now keep them unchanged at a six- year high. Finance Minister
Palaniappan Chidambaram yesterday said the central bank will have to
``balance'' growth and inflation objectives while estimating the economy
will expand at the slowest pace in four years in the next 12 months.
``Policy makers are now operating with fewer degrees of freedom,'' said
Rajeev Malik, senior economist at JPMorgan Chase in Singa****e. ``Monetary
policy measures will be im****tant if the government and the Reserve Bank
of
India are serious about managing inflation expectations.''
The yield on the benchmark nine-year bond rose 13 basis points to 7.91
percent at 5:30 p.m. close in Mumbai, the highest since Nov. 30.
India's rupee rebounded after the inflation data, recording the biggest
weekly advance since September on speculation policy makers will allow
gains
in the currency to temper rising prices. The rupee gained 1.3 percent this
week to 39.8875 per dollar as of 5.00 p.m. close in Mumbai, according to
data compiled by Bloomberg. The currency fell earlier today to 40.155.
Food Prices
The inflation rate has almost doubled since the last week of November,
stoked by food and commodity costs. Manufacturing price inflation is also
catching up now, accelerating to a one- year high of 6.27 percent in the
week ended March 15 from 4.21 percent at the start of the month.
Prices are rising at a time when more than three years of interest-rate
increases and a global economic slowdown are threatening to disrupt
India's
record expansion since 2003. Chidambaram expects the $906 billion economy,
Asia's third- biggest, to grow around 8 percent in the next 12 months, the
weakest pace since 2005.
``The main risks to inflation still relate to fuel and food,'' said Robert
Prior-Wandesforde, senior economist at HSBC in Singa****e, who expects
inflation to average 6.2 percent in the year starting April 1. ``If our
inflation projections are right, then the central bank and the government
face an even tougher year than we thought previously.''
Interest Rates
The People's Bank of China, which raised interest rates six times last
year,
is also trying to combat inflation at an 11-year high without derailing
the
economy.
Reserve Bank of India Governor Yaga Venugopal Reddy kept the key
repurchase
rate unchanged at 7.75 percent in the last monetary policy announcement on
Jan. 29. The next statement is scheduled for April 29.
Reddy has raised the central bank's key policy rates nine times since
October 2004 and the cash reserve ratio, or the pro****tion of deposits
commercial banks need to place with the central bank, five times since
December 2006.
``At the moment, we're assuming that commodity prices will remain high
because of demand,'' Chidambaram told Bloomberg News yesterday in an
interview. ``We've therefore taken fiscal steps to reduce the costs of
commodities. We have to remain vigilant and flexible and take such steps
depending upon how the prices play out.''
Rice, Wheat
Crude and edible oils are among India's biggest im****ts and their costs
have
risen more than three times since the current government came to power in
2004, Chidambaram said. The international prices of maize, rice and wheat,
staple items of food in India, have either doubled or tripled between 2004
and 2008, he said.
To contain prices, the government last month cut im****t taxes on edible
oil
for the fifth time in 15 months and stopped ex****ts of wheat, sugar, rice
and edible oils.
India yesterday withdrew a rule that allowed ex****ters of steel, cement,
chrome and manganese ore duty-free im****ts of some raw materials
equivalent
to the value of ex****ts, to bolster domestic supplies and check inflation.
The government today increased the minimum ex****t price for rice to boost
local supplies and drive down prices.
http://www.bloomberg.com/apps/news?pid=20601091&sid=aL2aWWhmJcTo&refer=india
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