India Inflation Quickens Before Rajan’s Interest-Rate Review

  • CPI quickens 5% in October vs 4.9% est. as pulses surge 42%
  • Central bank due to review interest rates next on Dec. 1

India’s inflation accelerated more than estimated, challenging central bank Governor Raghuram Rajan’s accommodative policy stance before he reviews interest rates a final time this year.

Consumer prices rose 5 percent in October from a year earlier after a 4.41 percent increase in September, the Statistics Ministry said in a statement on Thursday. The median of 33 estimates in a Bloomberg survey of economists had predicted a 4.9 percent gain. Industrial production grew 3.6 percent in September compared with an estimated 4.9 percent increase.

The Reserve Bank of India can reach its 5 percent CPI target for March 2017 with the current monetary stance, Rajan said after lowering rates four times this year. Finance Minister Arun Jaitley this month said he’s "quite happy" with the way rates have moved this year.

"Trends yet far suggest inflation should remain below the central bank’s 6 percent target in the March 2016 quarter," Radhika Rao, a Singapore-based economist at DBS Bank Ltd.. wrote in a report on Friday. "A downside surprise however will be necessary to renew odds for further rate cuts."

The benchmark stock index fell 0.9 percent as of 9:15 a.m. in Mumbai while the rupee strengthened 0.1 percent to 66.23 a dollar and the 10-year bond yield dropped 1 basis point to 7.67 percent. The markets had been shut on Wednesday and Thursday for public holidays.

There is a 66 percent chance the U.S. Federal Reserve will raise interest rates for the first time in nine years on Dec. 16, according to signals from the futures market.

* Consumer food price-gains accelerated to 5.25 percent in October from a year earlier after a 3.88 percent increase in September
* The increase was led by a 42 percent surge in the price of pulses

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