India June inflation hits 9.44%, rates seen up

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    Someoneforyou Regular Member

    Jan 26, 2011
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    India June inflation hits 9.44%, rates seen up
    India - 14 July 2011

    India's annual inflation accelerated to 9.44 percent in June, data showed Thursday, raising pressure for more interest rate hikes even with growth cooling in Asia's third-largest economy.

    The increase in the benchmark wholesale price index -- the government's most-watched cost-of-living monitor -- was up from May's 9.06 percent inflation rate, the commerce ministry reported.

    June's figure was below market forecasts of 9.7 percent. But it was still well above the Reserve Bank of India's comfort level of 5.0 to 6.0 percent -- making more rate rises virtually inevitable, analysts said.

    The below forecast figure "won't stop the central bank from hiking" at its scheduled meeting on July 26, said Credit Suisse economist Devika Mehndiratta.

    She, like other economists, forecast a quarter-point rise in the leading repo rate at which the Reserve Bank lends to commercial banks.

    Inflation is one of the biggest headaches for India's Congress-led government, heaping misery on the nation's legions of poor. It is the highest rate among major Asian economies.

    Expectations of an increase at this month's central bank meeting were buttressed by a sharp upward revision in April's inflation rate to 9.7 percent from 8.7 percent.

    Mehndiratta said she also expected an upward revision to the June figure that could kick inflation into double-digits, adding the central bank is "unlikely to be letting its guard down in such a scenario".

    Finance Minister Pranab Mukherjee said in a statement the figures were a "concern", adding the government and central bank were working together to reduce inflation, which has been at over nine percent since December.

    India's central bank has been among the most hawkish in the region, having increased key rates 10 times since March 2010.

    Analysts said signs of the economy losing steam as a result of higher lending costs and a worsening global economic climate would not stop the bank from raising rates again.

    India's annual industrial output growth decelerated unexpectedly in May to 5.6 percent, its weakest pace in nine months, down from 8.5 percent expansion in the same month a year ago, data earlier in the week showed.

    The central bank appears "willing to accept some moderation in growth in an attempt to control inflation", said Credit Suisse's Mehndiratta.

    The latest inflation rise, originally led by a spike in food prices, was fuelled by increases in fuel and manufactured goods costs.

    "Today?s numbers are not good news. Despite the lower-than-expected outcome, the trend is still up," said HSBC India chief economist Leif Eskesen.

    "The medicine is more and sustained policy tightening," he said.

    He predicted another quarter-point rise this month and a further 50 basis points of tightening afterwards, pushing the benchmark repo rate to 8.25 percent before the central bank takes a rest.

    Source: AFP

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