Inflation dampens hopes of Indian interest rate cut
Source: AFP |
July 16, 2013, Tuesday
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Print Edition
Print Edition
INDIA'S inflation hit a three-month high in June, data showed yesterday, against the backdrop of a weak currency, dampening hopes for interest rate cuts to spur a sharply slower economy.
The Wholesale Price Index, India's closest-watched price gauge, climbed to 4.86 percent from a year earlier, up from 4.70 percent in the previous month.
The Indian currency, meanwhile, softened by nearly half a rupee against the US dollar to trade at 59.96 rupees to the greenback, nearing lifetime lows.
"The 11 percent depreciation of the currency since early May means the chance of the Reserve Bank of India cutting interest rates at its next meeting on July 30 is close to zero," said Credit Suisse economist Robert Prior-Wandesforde. "In fact, there is probably a higher risk of hikes than cuts right now."
The rupee, which has hit a string of record lows, and accelerating wholesale prices after months of slower growth, has curbed the bank's room to cut rates to stimulate an economy growing at 5 percent, its weakest pace in a decade.
The economy has been struggling under high interest rates, strong consumer inflation and weak domestic and foreign investment, as well as a raft of graft scandals embroiling the Congress-led government.
The central bank has cut rates three times since the start of 2013 following an aggressive hiking spree, but borrowing costs remain high, dampening demand. However, economists say further rate cuts could lead to an even weaker rupee, pushing up the cost of imports and widening India's gaping current account deficit - the broadest measure of trade - that has alarmed global credit ratings agencies.
Politically sensitive food prices rose by 8.34 percent in June while the cost of onions - a staple in every Indian diet - had soared by 114 percent, the wholesale price data showed.
The Wholesale Price Index, India's closest-watched price gauge, climbed to 4.86 percent from a year earlier, up from 4.70 percent in the previous month.
The Indian currency, meanwhile, softened by nearly half a rupee against the US dollar to trade at 59.96 rupees to the greenback, nearing lifetime lows.
"The 11 percent depreciation of the currency since early May means the chance of the Reserve Bank of India cutting interest rates at its next meeting on July 30 is close to zero," said Credit Suisse economist Robert Prior-Wandesforde. "In fact, there is probably a higher risk of hikes than cuts right now."
The rupee, which has hit a string of record lows, and accelerating wholesale prices after months of slower growth, has curbed the bank's room to cut rates to stimulate an economy growing at 5 percent, its weakest pace in a decade.
The economy has been struggling under high interest rates, strong consumer inflation and weak domestic and foreign investment, as well as a raft of graft scandals embroiling the Congress-led government.
The central bank has cut rates three times since the start of 2013 following an aggressive hiking spree, but borrowing costs remain high, dampening demand. However, economists say further rate cuts could lead to an even weaker rupee, pushing up the cost of imports and widening India's gaping current account deficit - the broadest measure of trade - that has alarmed global credit ratings agencies.
Politically sensitive food prices rose by 8.34 percent in June while the cost of onions - a staple in every Indian diet - had soared by 114 percent, the wholesale price data showed.
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