Bloomberg News | Jul 19, 2010
India’s inflation will accelerate in July, the government’s top statistician said, increasing pressure on the central bank to raise interest rates next week for a fourth time in five months. “The inflation number in July will be higher than in June, in large measure because of what has happened to fuel prices,” T.C.A. Anant, 52, said in a July 16 interview in New Delhi, without providing details. The benchmark wholesale-price index jumped 10.55 percent in June after climbing 11.23 percent in April, the most in 19 months, a report showed last week. Prime Minister Manmohan Singh’s government on June 25 allowed state-run refiners including Indian Oil Corp. to raise prices of gasoline and diesel in a bid to cut its oil subsidy and narrow the budget deficit. Governor Duvvuri Subbarao is due to announce the next monetary policy decision on July 27.
“The full impact of the fuel price revision on inflation numbers is yet to be seen,” the New Delhi-based Federation of Indian Chambers of Commerce & Industry said in a report on July 17. “While normalization of the monetary policy is expected and the Reserve Bank of India would continue to tighten rates in the months ahead, premature and aggressive rollback of easy money policy can jeopardize growth.” Subbarao has increased the reverse repurchase and repurchase rates by three-quarters of a percentage point since mid-March. The reverse repurchase rate is 4 percent and the repurchase rate is 5.5 percent.
Most of the 14 economists surveyed by the Federation of Indian Chambers expect borrowing costs to be raised by a quarter-point on July 27, according to the report. Most Indian stocks fell after Anant’s comments. Nineteen of the 30 stocks fell on the benchmark Sensitive Index, which lost 0.2 percent at the 3:30 p.m. close in Mumbai. The yield on India’s 10-year bond fell two basis points, or 0.02 percentage point, to 7.62 percent. Anant, who taught econometrics at the Delhi School of Economics before taking over as the top bureaucrat in the statistics ministry on July 1, said he expects inflation to slow to between 6 percent and 7 percent by November.
“I am banking primarily on the fact that I expect better arrivals on the agricultural front,” said Anant, who holds a doctorate from Cornell University. Food costs accounted for only 28 percent of the June inflation reading, less than half the level in January. The weather office forecasts the June-September monsoon rains, the main source of irrigation in India, will be sufficient for farming. Indian farmers planted more rice, oilseeds and sugar cane as rains swept across the country nine days before they usually do, the agriculture ministry said this month. Last year’s rains were the weakest since 1972.