India’s inflation slowed last month to the lowest level in nine months, reducing pressure on the central bank to extend Asia’s fastest round of interest-rate increases this year.
The benchmark wholesale-price index rose 8.58 percent from a year earlier after an 8.62 percent increase in September, according to a commerce ministry statement in New Delhi yesterday. The median forecast of 22 economists in a Bloomberg News survey was for an 8.5 percent gain.
Reserve Bank of India Governor Duvvuri Subbarao, who raised rates on Nov. 2 for the sixth time this year, said the central bank may refrain from boosting them for three months, partly to ward off the risk of inflation-stoking capital inflows from overseas. The bank also wants to assess the impact of the monetary tightening on consumer demand. The government said on Friday that factory output growth dropped to a 16 month low in September.
“We see an interest-rate pause for now,” Indranil Pan, chief economist at Kotak Mahindra Bank Ltd in Mumbai, said before the report. “They will resume raising rates next year if inflation does not drop fast enough.”
India’s central bank is aiming to cool inflation to 6 percent by March 31.
Stocks, bonds and the rupee were little changed after the report. The Bombay Stock Exchange’s Sensitive Index rose 0.1 percent to 20,184.24 as of 12:10pm in Mumbai.
The rupee fell 0.7 percent to 45.1 against the US dollar on concern that weakening industrial output will moderate capital flows into the nation’s assets. The yield on the 12 year government bond was unchanged at 8.06 percent.
So far this year, the interest-rate differential between India and advanced countries spurred an unprecedented US$10 billion inflow into rupee debt, strengthening the currency by 4.2 percent against the dollar since Sept. 1. Overseas funds have also invested a record US$28.5 billion in Indian stocks since Jan. 1 on prospects of faster economic expansion, driving the stock index to near a record.
The bank’s benchmark repurchase rate is 6.25 percent. By comparison, the US Federal Reserve’s target for overnight interbank loans is zero to 0.25 percent, where it has remained since December 2008. The Fed on Nov. 3 left unchanged its pledge to keep rates low for an “extended period” and said it will buy an additional US$600 billion of treasuries through June.
The Bank of Japan last month unveiled a ￥5 trillion (US$61 billion) fund that will buy government and corporate debt, as well as invest in real-estate investment trusts and exchange- traded funds to spur growth.
Shubhada Rao, chief economist at Yes Bank in Mumbai, said India’s central bank may pause its rate--increase cycle for an “extended” period as counterparts abroad ease their monetary policies.
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