India’s inflation slowed to an 11-month low, giving the central bank scope this month to pause Asia’s fastest round of interest-rate increases.
The benchmark wholesale-price index rose 7.48 percent in November from a year earlier after an 8.58 percent jump in October, the commerce ministry said in a statement in New Delhi today. The median estimate of 27 economists in a Bloomberg News survey was for a 7.45 percent gain.
Price pressures may strengthen as industrial production grew at the fastest pace in three months in October, signaling consumer demand remains strong even after six rate increases in 2010. Reserve Bank of India Governor Duvvuri Subbarao may resume monetary tightening in January after keeping borrowing costs on hold at a Dec. 16 policy meeting as a cash crunch at lenders limits his ability to boost borrowing costs, economists said.
“The central bank will pause this month,” Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai, said before the report. “It will hike rates in January since inflation pressures are building up and growth is strong.”
For now, a record 1.1 trillion rupees ($22 billion) of share sales by companies including Coal India Ltd. in 2010 has drained funds from the banking system.
Commercial banks borrowed an average 820 billion rupees a day this quarter using the Reserve Bank’s repurchase-auction window, compared with 239 billion rupees in the previous three months, according to data compiled by Bloomberg, signaling a shortage of money with the lenders.
The Bombay Stock Exchange’s Sensitive Index advanced 0.5 percent at 11:39 a.m. in Mumbai. The yield on India’s seven-year bond was unchanged at 7.99 percent, the lowest level since Dec. 2, as the RBI prepares to buy back 120 billion rupees of notes tomorrow to inject cash into the economy.
Deputy Governor Subir Gokarn told reporters in Kolkata last week that the move to replenish funds at lenders isn’t a sign of a change in the central bank’s monetary policy stance.
Subbarao said Dec. 8 that inflation is above the central bank’s “tolerance level” as the country battles rising prices along with China. The Reserve Bank aims to slow inflation to between 4 percent and 4.5 percent.
Finance Minister Pranab Mukherjee told reporters in New Delhi that he expects the inflation rate at 6 percent by March 31.
India’s industrial output rose 10.8 percent in October.
In China, where industrial output jumped 13.1 percent in October from a year earlier, inflation is accelerating following an unprecedented credit expansion, a result of efforts to protect the economy from last year’s global recession. Consumer prices rose 4.4 percent in October from a year earlier, the fastest pace in two years.
The People’s Bank of China on Dec. 10 raised lenders’ reserve requirements for the third time in five weeks. In October, it increased the benchmark interest rate for the first time since 2007.
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