Indian inflation accelerated to a three-month high last month, threatening to curb scope for a further interest-rate cut as a weak rupee stokes import costs.
The wholesale price index rose 4.86 percent from a year earlier, surpassing May’s 4.7 percent climb, a Ministry of Commerce and Industry statement showed in New Delhi yesterday. The median estimate in a Bloomberg News survey of 30 analysts was 4.94 percent. The Reserve Bank of India’s threshold level is about 5 percent.
The rupee’s drop of about 8 percent against the US dollar this year has made imports, including oil, more expensive and threatens to fan wider price pressures even as economic growth falters. The Reserve Bank will leave borrowing costs unchanged on July 30 for a second month after retail inflation quickened toward 10 percent, State Bank of India and Nomura Holdings Inc predict.
“I don’t think the Reserve Bank can afford any cuts at this time due to the levels of consumer prices and the rupee’s decline,” said Suvodeep Rakshit, an economist at Kotak Securities in Mumbai.
The currency, which touched an all-time low of 61.2125 per US dollar on Monday last week, closed at 60.035 yesterday, up from Friday’s 59.89. The S&P BSE SENSEX index gained 0.3 percent, while the yield on the 8.15 percent bond maturing June 2022 rose to 7.67 percent from 7.65 percent on July 12.
The currency was the world’s worst performer last month, hurt by a record current-account deficit. The possibility of reduced US monetary stimulus has also sapped demand for assets in emerging markets from Brazil to India.
Reserve Bank of India Governor Duvvuri Subbarao lowered the central bank’s benchmark repurchase rate by 25 basis points in January, March and May each to 7.25 percent to bolster Indian expansion, which slowed to a decade low in the financial year ended March.
Industrial output unexpectedly shrank in May, while consumer-price inflation accelerated to 9.87 percent last month, signs that the Asia’s third-largest economy continues to struggle as exports drop, domestic demand moderates and supply bottlenecks contribute to price increases.
Food prices climbed 9.74 percent last month from a year earlier, the report showed. Fuel and power rose 7.12 percent. Non-food manufactured goods prices, a measure of core inflation, advanced 2.1 percent after a 2.35 percent gain in May, according to Bloomberg calculations based on the data.