India inflation falls, central bank may pause on rate hikes

Wednesday, 15 December 2010 00:01 - - {{hitsCtrl.values.hits}}

NEW DELHI (AFP) - India’s annual inflation rate dropped by a over a percentage point in November from the previous month, lending weight to forecasts the central bank may pause in its aggressive rate hiking cycle.

The inflation rate fell to 7.48 percent on a 12-month basis from the 8.58 percent level it logged in October, helped by lower prices across the board. The figure was in line with market expectations.

Inflation, as calculated by the wholesale price index, has retreated from a two-year high last May of 10.16 percent, propelled by food and fuel costs.

The bank expects inflation to ease to 5.5 percent by the end of the current fiscal year in March 2011 and hopes to wrestle it down to four to 4.5 percent.

The data comes two days before a key central bank meeting to discuss monetary policy.

The bank, which has raised rates six times since the start of 2010, signalled last month it would pause in raising rates, although recent strong economic growth has prompted economists to say the halt would not last long.

For the first seven months of the fiscal year to October, industrial output expanded 10.3 percent, buttressing government projections that economic growth for the fiscal year to March 31 could cross nine percent.

“The strong momentum underscores the need for monetary policy vigilance and further rate hikes, starting in the first quarter next year,” said HSBC chief India economist Leif Lybecker Eskesen in a research note late last week.

The central bank’s benchmark rate, the repo, at which it lends to commercial banks, currently stands at 6.25 percent.

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