Subbarao’s RBI to ’Take Note’ as Inflation Eases to 41-Month Low
“We certainly will take note of the softening of inflation and the external payments situation in the next mid-quarter policy statement on June 17,” Subbarao said at an event in Frankfurt yesterday, after data showed Indian inflation eased to a 41-month low in April.
The wholesale-price index rose 4.89 percent from a year earlier, after climbing 5.96 percent in March. Last month’s pace is the slowest since November 2009, according to previously reported data. The median estimate of 29 economists in a Bloomberg News survey was 5.45 percent. Subbarao added that the rate of increase in consumer prices is “still high.”
India’s central bank cut interest rates for a third time this year on May 3 and signaled there is little space to ease further, citing a current-account shortfall and the possibility of price pressures returning. The economy grew 5 percent in the year ended March, the least since 2003, according to an initial estimate from the government.
“Easing price pressures and weak growth will allow the RBI to continue with its calibrated easing,” said Tirthankar Patnaik, a Mumbai-based strategist at Religare Capital Markets Ltd. The central bank may cut rates by another 75 basis points in the current fiscal year to March, he said.
India’s central bank this month lowered the repurchase rate to 7.25 percent from 7.5 percent, a third straight quarter-point cut. The monetary authority described the current-account shortfall as “by far the biggest risk to the economy” after the gap swelled to $32.6 billion in the quarter ended Dec. 31, a record 6.7 percent of gross domestic product.
Prime Minister Manmohan Singh’s minority government has changed policies since September last year to spur growth and avert a credit-rating downgrade. The steps included trimming the budget deficit, opening the retail and aviation industries to more investment from abroad and reducing a levy on foreign investors in local bonds.
To contact the editor responsible for this story: Stephanie Phang at email@example.com