Thursday, 20 November 2008

More scope for RBI on rates as prices ease

NEW DELHI (Reuters) - Inflation eased slightly to a 5-½ month low in early November, helped by lower fuel prices and slowing demand, adding to expectations the Reserve Bank would aggressively lower rates as growth falters.

India's wholesale price index , the most widely watched inflation measure, rose 8.90 percent in the 12 months to Nov. 8, a shade below forecasts for a rise of 8.99 percent and well below double-digit rates seen just last month.

Falling oil and commodity prices and weakening demand have eased inflation pressures in major economies around the world, with the United States seeing a record drop in consumer prices in October.

This was India's lowest reading since May 24 and well below early August's peak of 12.91 percent and it comes as policy makers are trying to protect the economy from the ripple effects of a global slowdown.

"Although inflation seems to have fallen lower than we had expected, we expect the momentum downwards to continue," said Saugata Bhattacharya, economist at Axis Bank in Mumbai.

"It still provides adequate leeway for policy authorities to pursue expansionary measures as and when the situation demands."

India's $1 trillion economy, Asia's third largest, has shown palpable signs of slowing in recent weeks. Factory output growth has slowed sharply, manufacturers have trimmed output and put expansion plans on the backburner.

Finance Minister Palaniappan Chidambaram has urged real estate firms, airlines and car companies to cut prices to stimulate demand.

The Reserve Bank forecasts inflation to end the fiscal year in March at 7 percent.

Economists and policy makers expect growth to slow to 7 percent this fiscal year from 9 percent last year.

Authorities have taken a slew of measures including cutting the Reserve Bank's key lending rate by 150 basis points to 7.5 percent and lowering banks' reserve requirements to improve liquidity and boost growth.

No comments:

Post a Comment

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.