India may reduce rates

New Delhi

India’s two main inflation indices eased further yesterday, according to government data, hiking prospects of an interest rate cut later this month.  

Retail inflation -- the central bank’s benchmark -- eased to 3.66 per cent in August against 7.03pc last year, and from a revised 3.69pc in July, thanks to falling rates of vegetables and fruits.

It fell nearly in line with the 3.57pc predicted by a Bloomberg survey. 

The Wholesale Price Index (WPI), an inflation indicator that measures the biggest basket of goods, fell 4.95pc last month compared with a year earlier, after slipping 4.05pc in July, the commerce ministry said.

A separate Bloomberg survey of 32 economists had predicted the index would slump 4.4pc. With prices at record lows, expectations are skyrocketing that the Reserve Bank of India (RBI) may slash borrowing costs in its next policy review on September 29 to boost economic growth.

“Wholesale price inflation has now been in negative territory for ten consecutive months, and is at its lowest since monthly prices started being tracked in 2005,” Capital Economics analyst Shilan Shah said.

“This strengthens our view that interest rates will be cut at the RBI’s policy meeting later this month.”

Pressure has been growing for a cut in interest rates after RBI governor Raghuram Rajan kept them on hold last month after three earlier cuts this year.

India’s economy slowed to 7pc in the first quarter of the current financial year, matching China and outpacing most major economies, but down from 7.5pc in the previous quarter. 

Prime Minister Narendra Modi’s business-friendly government is keen on a further cut as it seeks to quicken the pace of growth in Asia’s third-largest economy. 

But Rajan is concerned about a renewed rise in inflation in a country where food and other price hikes cause huge hardship for tens of millions of poor.