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India’s Food Inflation Stays Above 9% for Fifth Week

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Sept. 8 (Bloomberg) -- India’s food inflation rate stayed above 9 percent for a fifth straight week, maintaining pressure on the central bank to raise interest rates.

An index measuring wholesale prices of farm products including rice and wheat rose 9.55 percent in the week ended Aug. 27 from a year earlier, the commerce ministry said in an e-mailed statement in New Delhi today. It gained 10.05 percent the previous week.

Reserve Bank of India Governor Duvvuri Subbarao has to weigh the risks to economic growth posed by Europe’s sovereign-debt crisis and a faltering recovery in the U.S. when he announces the next rate decision on Sept. 16. Higher food costs have contributed in keeping India’s benchmark wholesale-price inflation at more than 9 percent since the start of December.

“The RBI will raise rates next week and then pause to assess the impact of its rate increases so far,” said N.R. Bhanumurthy, a New Delhi-based economist at the National Institute of Public Finance and Policy.

He expects the central bank to boost its repurchase rate by a quarter of a percentage point to 8.25 percent next week.

The BSE India Sensitive Index, rose 0.6 percent at the 3:30 p.m. close in Mumbai. The yield on the 7.8 percent bonds due April 2021 fell two basis points, or 0.02 percentage point, to 8.30 percent.

Subbarao has raised borrowing costs 11 times since mid-March 2010. India’s wholesale-price inflation was 9.22 percent in July.

Impact Awaited

Montek Singh Ahluwalia, deputy chairman of India’s planning commission, said today that the Reserve Bank’s last two rate increases are yet to have an impact on inflation, which may decline to 7 percent by March 31.

Food inflation eased as wheat prices declined 1 percent in the week ended Aug. 27 from a year earlier, today’s report showed. The cost of lentils dropped 1.6 percent.

Prime Minister Manmohan Singh’s government is relying on adequate monsoon rains this year to boost crop production and moderate food prices.

To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.

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