Indian inflation eased in March by more than economists estimated to a 40-month low, boosting the case for an interest-rate cut to revive a struggling economy. Bonds and stocks gained, while the rupee weakened.
The wholesale-price index rose 5.96 percent from a year earlier, after climbing 6.84 percent in February, the Commerce Ministry said in a statement in New Delhi today. The median of 29 estimates in a Bloomberg News survey was 6.27 percent.
India’s central bank has lowered borrowing costs twice in 2013 to spur investment, after the government pared the budget deficit to help curb price increases and eased caps on capital inflows to fund a record current-account gap. The risk of stoking imports as exports struggle, and consumer inflation exceeding 10 percent, limited each rate cut to 25 basis points.
“Moderating inflation will give the Reserve Bank of India room to ease policy,” said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai. “The RBI will still be cautious and further cuts will depend upon how inflation behaves and the current-account deficit pans out.”
The yield on the 8.15 percent government bond due June 2022 slid 3 basis points, or 0.03 percentage point, to 7.84 percent as of 12:53 p.m. in Mumbai. The BSE India Sensitive Index rallied 0.7 percent, while the rupee trimmed the day’s loss to 0.2 percent and traded at 54.61 a dollar.
Inflation remains stubborn and elevated, Reserve Bank Governor Duvvuri Subbarao said this month. The shortfall in the current account is above sustainable levels, he added. The next policy decision is due May 3.
Finance Minister Palaniappan Chidambaram is touring Canada and the U.S. to woo foreign investors, after estimating Asia’s No. 3 economy may need more than $75 billion annually to fund the imbalance in the widest measure of trade. Inward shipments of gold and oil have contributed to the deficit.
Food prices rose 8.73 percent in March from a year earlier, today’s report showed, while fuel and power costs climbed 10.18 percent. Non-food manufactured goods prices, a gauge of core inflation, advanced 3.41 percent after a 3.77 percent gain in February, according to data compiled by Bloomberg.
The commerce ministry today revised January inflation to 7.31 percent from an earlier estimate of 6.62 percent.
Subbarao has lowered the repurchase rate to 7.5 percent this year to aid growth. The statistics agency estimates the economy expanded 5 percent in the year ended March, the least since 2003, amid an uneven global recovery.
India’s government changed policies in September to stem the slowdown ahead of a general election due by May 2014.
The steps have included opening retail and aviation to more foreign investment, allowing higher diesel prices to curb energy subsidies, lowering levies on overseas borrowing, easing restrictions on bond purchases by investors abroad and setting up a panel to speed up infrastructure projects.
Slowing automobile demand underscores the deterioration in the economy. Sales in the car industry, which includes companies such as Maruti Suzuki India Ltd. and the local unit of Ford Motor Co., fell 6.7 percent last fiscal year, according to the Society of Indian Automobile Manufacturers.