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India Will Buy Onions From Pakistan to Cool Inflation

India Will Buy Onions From Pakistan to Cool Inflation

India will import 1,000 metric tons of onions and keep a ban on exports of edible oils and lentils to slow inflation.

The benchmark wholesale-price index rose 8.43 percent in December from a year earlier after a 7.48 percent gain in November, according to a commerce ministry statement in New Delhi today. The median forecast of 30 economists in a Bloomberg News survey was for an 8.4 percent increase.

The arrival of onions, a key ingredient in local cuisine, from Pakistan will help check price gains, according to a statement from the Indian prime minister’s office yesterday. Reserve Bank of India Governor Duvvuri Subbarao may join counterparts in South Korea and Thailand in raising borrowing costs this month to curb inflation.

“Policy makers are firing on all cylinders to contain inflation,” said D.H. Pai Panandiker, president of RPG Foundation, an economic policy group in New Delhi. “The RBI may likely hike rates this month.”

The benchmark nine-year government bond yield rose two basis points to 8.16 percent at noon in Mumbai today, extending a gain of 25 basis points so far this month on speculation the Reserve Bank of India may boost rates for the seventh time in a year at the Jan. 25 policy meeting. The RBI’s benchmark repurchase rate is 6.25 percent.

Rupee Weakens

The Bombay Stock Exchange’s Sensitive Index was little changed at 19,195.48 while the rupee weakened 0.1 percent to 45.30 against the dollar.

“Our experience in the recent past has been that while prices of most manufactured goods and services have been reasonably stable, food prices have frequently risen at unacceptable rates,” the statement showed. “The current bout of inflation is driven by a rise in prices of vegetables and fruits, which is more difficult to manage because these commodities are not held in public stocks.”

An index measuring wholesale prices of farm products rose 16.91 percent in the week ended Jan. 1, the commerce ministry said yesterday. The gauge gained 18.32 percent the previous week and has remained above 12 percent for four straight weeks. Onion costs surged 70 percent in the week to Jan. 1.

High food costs for a sustained period will lead to more wage demands, stoking inflation, Chakravarthy Rangarajan, the top economic adviser to Prime Minister Manmohan Singh, said last week as he sought “some action” from the central bank.

Policy Stance

Subbarao, who raised rates the most in Asia in 2010, held off on boosting borrowing costs in the last policy statement on Dec. 16 as a record 1.1 trillion rupees ($24.4 billion) of share sales by companies including Coal India Ltd. caused a cash squeeze at lenders.

Even so, officials across Asia have tightened monetary policy in recent weeks.

The Bank of Korea yesterday raised borrowing costs for the third time since the global financial crisis while Thailand on Jan. 12 increased its benchmark rate for the fourth time in seven months. China boosted rates twice in the fourth quarter of last year.

South Korea also said it aims to freeze the cost of utilities, including electricity and gas, cut food tariffs and ask steelmakers to refrain from boosting prices to help stabilize commodity costs.

India plans to sell onions at 35 rupees a kilogram and review import and export policies of all “essential commodities” to improve supplies, the statement from the prime minister’s office said. Export of edible oils, pulses and non-basmati rice will “remain banned,” according to the statement.

Political Pressure

The price gains in a nation where the World Bank says 828 million people live on less than $2 a day have exposed Singh’s government to criticism from opposition parties, which are planning nationwide protests from this month.

The main opposition Bharatiya Janata Party, or BJP, will hold demonstrations and stage sit-ins in India’s major towns for a month starting Jan. 20, party spokesman Ravi Shankar Prasad said in New Delhi on Jan. 11.

The government measures may not staunch inflation as weather disruptions to crops globally keep prices high.

“Given extreme weather patterns across the globe -- floods in Australia, snowstorms in the northern hemisphere -- price rises could persist in the coming months,” Rohini Malkani and Anushka Shah, economists at Citigroup Inc., wrote in a Jan. 10 report. “This poses upside risks to our inflation forecasts.”

Global Prices

World food prices reached an all-time high in December on higher sugar, grain and oilseed costs, the United Nations said, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt.

Palm oil, which accounts for 80 percent of India’s annual cooking oil imports worth $8.4 billion, have surged 56 percent in the past six months in Malaysia, while soybean oil climbed 43 percent in 2010, because of adverse weather in the producing nations.

The outlook for higher inflation is prompting local banks in India to join Goldman Sachs Group Inc. in predicting RBI’s benchmark borrowing costs will climb 1 percentage point in 2011.

Tushar Poddar, a Mumbai-based economist at Goldman Sachs who correctly predicted that the central bank would raise the benchmark repurchase rate by 150 basis points in 2010, said in an interview Jan. 10 that the biggest risk to inflation is higher food and commodity prices. Poddar told reporters in Mumbai on Dec. 8 that he expects the central bank to lift interest rates 100 basis points in 2011.

(Updates with bond yield in fifth paragraph.)