India Prices Ease More Than Estimated Before Rajan Review

India’s inflation slowed more than economists expected in December to a five-month low, giving the central bank scope to keep interest rates on hold for a second straight meeting later this month.

The wholesale-price index rose 6.16 percent from a year earlier, compared with 7.52 percent in November, the Commerce Ministry said in New Delhi today. The median estimate in a Bloomberg News survey of 44 analysts was 6.99 percent.

Reserve Bank of India Governor Raghuram Rajan is seeking to curb price pressures in Asia’s third-biggest economy even as growth remains near a decade low. He left the benchmark repurchase rate unchanged at 7.75 percent last month to assess whether a November spike in inflation would be sustained. His next policy review is scheduled for Jan. 28.

“This number will at most enable the central bank to hold rates later this month,” said Arun Singh, an economist at Dun & Bradstreet Information Services India Pvt. in Mumbai, referring to the latest WPI figure. While inflation easing is positive, price increases remain at a level that won’t allow the RBI to consider cutting rates soon, he said.

The rupee gained 0.1 percent to 61.4437 against the dollar at 12:36 p.m. in Mumbai. The S&P BSE Sensex index advanced 1 percent, while the yield on the 10-year government bond due November 2023 fell to 8.64 percent from 8.71 percent yesterday.

Declining prices of onions and other vegetables give Rajan scope to hold the repurchase rate at 7.75 percent on Jan. 28, according to 10 economists from companies such as Barclays Plc, Royal Bank of Scotland Group Plc and ING Vysya Bank Ltd. surveyed by Bloomberg News. Rajan has raised the repo rate by 50 basis points since taking over the RBI in September.

Election Nears

India’s consumer prices quickened 9.87 percent in December, slower than the 11.16 percent pace in November, a Jan. 13 government report showed. Consumer-price increases in Asia’s third-largest economy averaged 10.06 percent in 2013, compared with 6.2 percent in Brazil, 2.6 percent in China and 6.8 percent in Russia, according to data compiled by Bloomberg.

Food prices climbed 13.7 percent in December from a year earlier, slower than the 19.9 percent pace in November, today’s report showed. Prices of non-food manufactured goods such as tobacco, rubber and chemicals -- a measure of core inflation -- rose 2.75 percent after a 2.63 percent gain in November, Bloomberg calculations based on the data showed.

Inflation is a sensitive issue as India prepares for elections due by May. Prime Minister Manmohan Singh said Jan. 3 his government could’ve done better at controlling price rises even as incomes had grown at a faster rate than inflation.

Opinion polls show Singh’s party trailing the main opposition Bharatiya Janata Party, which won the most seats in four of five state elections held over the past two months.

Production Contracts

The RBI will avoid further policy tightening should inflation cool, Ashima Goyal, a member of a panel that advises the RBI on monetary policy, said in a Dec. 31 interview.

“The challenges of containing inflationary pressures limit what monetary policy can do,” Rajan said in the foreword to the RBI’s report on financial stability released on Dec. 30.

India’s industrial production contracted 2.1 percent in November from a year ago, after declining 1.6 percent in October, a government report showed Jan. 10. The central bank estimates that India’s economy will expand 5 percent in the year ending March 31, the same as the previous year, which was the lowest in a decade.

While growth is subdued, price pressures are forcing companies to raise prices. Jindal Steel & Power Ltd. raised its product prices by 1,000 rupees per ton this month, while Indian Oil Corp. increased diesel prices by 0.50 rupees per liter.

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