NEW DELHI – Indian inflation rose to the highest level in 10 months in September, limiting the central bank's ability to cut rates to help support the slowing economy.
The wholesale price index rose 7.81% in September from a year earlier due to a rise in fuel prices, government data showed Monday.
It rose 7.55% in August. The September reading was slightly higher than the 7.75% median estimate in a poll of 16 economists.
The government also sharply revised up July's inflation print to 7.52% from 6.87% reported earlier. The acceleration in inflation comes after the government last month raised state-set prices of diesel by 14% to help rein in New Delhi's gaping fiscal deficit.
The move was expected to drive up headline inflation in the subsequent months. After the inflation figures were released Monday, the benchmark 8.15% 2022 bond slipped to 99.85 rupees from 99.91 rupees beforehand.
The inflation results complicate the Reserve Bank of India's task. It will have to decide between cutting rates and risk stoking inflation or keeping rates steady to hold prices down even though that may push Asia's third-largest economy deeper into a slowdown.
The inflationary situation has worsened due to the diesel price increase and sharp gains in major primary article prices, said Rupa Rege Nitsure, chief economist at Bank of Baroda.
"Given that growth has also slowed significantly, the RBI is likely to reduce the CRR [cash reserve ratio] further but not touch the policy rates on Oct. 30" Ms. Nitsure added.
Oct. 30 is the date of the next policy board meeting. CRR is the portion of deposits that banks need to set aside with the RBI to meet emergency withdrawal demands.
The RBI cut the reserve requirement by a quarter percentage point to 4.5% last month to help improve the availability of credit. It has held the policy lending rate steady at 8.0% at the last three policy decisions since April's half-a-percentage-point reduction.
There is immense pressure from industry lobby groups for the RBI to lower rates, as cuts are seen as necessary to revive investment and growth. The government's fiscal and economic reform measures last month have also fueled demands for a rate cut to help support an economic recovery.
The government has also been leaning in favor of a rate cut. Economic Affairs Secretary Arvind Mayaram said Sunday that he hoped the RBI would match the government's efforts with a rate cut on Oct. 30. "I sincerely hope the RBI will give a positive signal, even a small one," he said in an interview.
The RBI has been struggling to control inflation for some years now. It raised interest rates 13 times in 2010 and 2011, but upward price pressures remain due to an inefficient farm supply chain and the government's loose fiscal stance, which dilutes monetary policy efforts.
Monday's data showed fuel prices shot up 4.0% month-on-month in September after rising 3.1% in August. The Indian economy grew 5.5% in the April-June quarter, recovering slightly from a nine-year low of 5.3% in the preceding quarter.
"My guess is that for the first six months of the current year, the GDP growth is around 5.5%," said Montek Singh Ahluwalia, deputy chairman of the Planning Commission -- the top government think-tank.
"It is our hope that in the second half of the year many of the measures taken by the government to revive investor confidence will lead to a turnaround setting in," Mr. Ahluwalia told reporters earlier Monday.
wsj.com
The wholesale price index rose 7.81% in September from a year earlier due to a rise in fuel prices, government data showed Monday.
It rose 7.55% in August. The September reading was slightly higher than the 7.75% median estimate in a poll of 16 economists.
The government also sharply revised up July's inflation print to 7.52% from 6.87% reported earlier. The acceleration in inflation comes after the government last month raised state-set prices of diesel by 14% to help rein in New Delhi's gaping fiscal deficit.
The move was expected to drive up headline inflation in the subsequent months. After the inflation figures were released Monday, the benchmark 8.15% 2022 bond slipped to 99.85 rupees from 99.91 rupees beforehand.
The inflation results complicate the Reserve Bank of India's task. It will have to decide between cutting rates and risk stoking inflation or keeping rates steady to hold prices down even though that may push Asia's third-largest economy deeper into a slowdown.
The inflationary situation has worsened due to the diesel price increase and sharp gains in major primary article prices, said Rupa Rege Nitsure, chief economist at Bank of Baroda.
"Given that growth has also slowed significantly, the RBI is likely to reduce the CRR [cash reserve ratio] further but not touch the policy rates on Oct. 30" Ms. Nitsure added.
Oct. 30 is the date of the next policy board meeting. CRR is the portion of deposits that banks need to set aside with the RBI to meet emergency withdrawal demands.
The RBI cut the reserve requirement by a quarter percentage point to 4.5% last month to help improve the availability of credit. It has held the policy lending rate steady at 8.0% at the last three policy decisions since April's half-a-percentage-point reduction.
There is immense pressure from industry lobby groups for the RBI to lower rates, as cuts are seen as necessary to revive investment and growth. The government's fiscal and economic reform measures last month have also fueled demands for a rate cut to help support an economic recovery.
The government has also been leaning in favor of a rate cut. Economic Affairs Secretary Arvind Mayaram said Sunday that he hoped the RBI would match the government's efforts with a rate cut on Oct. 30. "I sincerely hope the RBI will give a positive signal, even a small one," he said in an interview.
The RBI has been struggling to control inflation for some years now. It raised interest rates 13 times in 2010 and 2011, but upward price pressures remain due to an inefficient farm supply chain and the government's loose fiscal stance, which dilutes monetary policy efforts.
Monday's data showed fuel prices shot up 4.0% month-on-month in September after rising 3.1% in August. The Indian economy grew 5.5% in the April-June quarter, recovering slightly from a nine-year low of 5.3% in the preceding quarter.
"My guess is that for the first six months of the current year, the GDP growth is around 5.5%," said Montek Singh Ahluwalia, deputy chairman of the Planning Commission -- the top government think-tank.
"It is our hope that in the second half of the year many of the measures taken by the government to revive investor confidence will lead to a turnaround setting in," Mr. Ahluwalia told reporters earlier Monday.
wsj.com
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