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Indian inflation edges up, but central bank seen less hawkish PDF Print E-mail
Sunday, 27 January 2008

Agence France-Presse. New Delhi

India's inflation edged upward, official data on Friday showed, but analysts said this week's US interest rate cut made it more likely the Indian central bank could follow suit. Annual inflation quickened to 3.83 per cent for the week ended January 12 from 3.79 percent a week earlier, according to the wholesale price index, India's main cost-of-living monitor.

Inflation stood at 6.15 per cent in the same period the previous year. Inflation rose on the back of rises in manufactured goods and food prices such as rice and maize, the government data showed. But it remained below the Reserve Bank of India's ceiling of close to five percent for the current fiscal year to March 31, 2008. Analysts had expected the Indian central bank — wary about the impact of sharp rises in global oil and commodity prices — to keep its interest rates on hold this year.

But anxiety over a global slowdown triggered by a possible US recession and the sharp US rate cut had changed the picture, they said. The US Federal Reserve's unprecedented three-fourths of a point cut in its base short-term interest rate to 3.50 per cent Tuesday was aimed at stimulating an ailing US economy, battered by a severe housing slump and tight credit.

Concerns that Indian growth might slow further than expected due to a US slowdown fuelled expectations that a rate cut could come as early as next Tuesday's central bank monetary policy meeting. Nine interest rate hikes since 2004 and steps by the central bank to force commercial lenders to put aside more reserve funds to brake lending growth have slowed consumer demand and dampened expansion.

'The RBI has been focused on inflation for the last two years and looks set to give greater priority to its other objective — growth,' said HSBC economist Robert Prior-Wandesforde in Singapore. 'We now expect two 25 basis point rate cuts this year, possibly starting at next Tuesday's monetary policy meeting,' he said.

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