India CPI Quickens as Output Grows, Hurts Case for Rate Cut

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India’s inflation accelerated as factory output grew, hurting the case for central bank Governor Raghuram Rajan to cut interest rates again.

Consumer prices rose 5.01 percent in May from a year earlier after a 4.87 percent increase in April, the Statistics Ministry said in a statement in New Delhi on Friday. The median of 35 estimates in a Bloomberg survey had predicted a 5 percent gain. Industrial production grew 4.1 percent in March compared with an estimated 1.5 percent increase.

India’s monsoon and its impact on food will be key to further easing, Rajan said on June 2 after cutting rates a third time this year. CPI will ease until August before rising to near his target of 6 percent by January 2016, he said.

The government’s forecast for below-average rainfall and rebounding oil prices risk fanning inflation that’s the second-fastest in Asia.

“As of now, there is no space for cutting interest rates,” said Prasanna Ananthasubramanian, chief economist at ICICI Securities Primary Dealership in Mumbai.

Stocks, Swaps

Most economists in a Bloomberg survey published last month saw Rajan keeping the benchmark repurchase rate at 7.25 percent through 2015. Interest-rate swaps indicate he’ll stay on hold as well.

The yield on the sovereign bond due July 2024 has jumped 29 basis points this month, the most for a benchmark 10-year note since August 2013. Stocks have fallen 5 percent and the rupee weakened 0.4 percent. The currency’s one-month non-deliverable forward was little changed offshore soon after the data. Local markets had shut before the release.

About 55 percent of India’s farmland depends on the July-September monsoon for water and food prices account for almost 50 percent of India’s CPI basket. The central bank is bound by a mandate to lower inflation to around 4 percent in the next few years.

Food prices rose 4.8 percent in May from a year earlier -- led by an 16.6 percent jump in pulses -- after April’s 5.11 percent increase, Friday’s data showed.

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