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Inflation tops 12 pct, policy seen tight PDF Print E-mail
Friday, 08 August 2008

NEW DELHI, Thu Aug 7, ( - India's annual inflation topped 12 percent for the first time in 13 years in late July, and analysts said it was yet to peak and the Reserve Bank of India (RBI) was not done with monetary tightening.

The wholesale price index, India's most widely watched price measure, rose 12.01 pct in the 12 months to July 26, above the previous week's 11.98 percent and the highest since the current series became available in 1995.

A Reuters poll of economists had forecast the rate at 12.02 percent, and many see the central bank raising interest rates again before the fiscal year ends in March, after three increases in quick succession in June and July.

"We are looking at inflation peaking around 13.5-14 percent by around January," said Indranil Pan, chief economist at Kotak Mahindra Bank.

"But the index movement seems to have normalised as there is no significant difference from market expectations."

The data comes after market close. Before its release, a newspaper website, which often has the number in advance, reported wrongly that it would be 12.1 percent, sending the 10-year bond yield 4 basis points up to close at 9.10 percent.

Last week, the RBI raised its benchmark lending rate by 50 basis points to 9.0 percent, its highest in seven years, to check inflation expectations as well as rising prices.

It also plans to hike banks' reserve requirements at the end of August to soak up ready cash as it seeks to quell demand and deter knock-on price hikes from higher fuel prices.

RBI Governor Yaga Venugopal Reddy has said inflation is likely to hold at current levels for the next few months and on Thursday a top policy maker said he expected it to ease below double digits by the fiscal year end next March.

Montek Singh Ahluwalia, deputy chairman of the Planning Commission, which charts out five-year growth strategies, also said softening oil prices were a "welcome development".

Authorities say lower crude prices and the impact of monsoon rains should moderate domestic prices in a few months and inflation should hover at 8.0-9.0 percent by the end of the 2008/09 financial year.

The government also revised up the inflation reading for the week ending May 31 to 9.32 percent from 8.75 percent, following a pattern of sizeable revisions this year.

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