| GEO Business|
| Slowing inflation in India may lead to rate cut|
| Updated at: 1723 PST, Thursday, March 26, 2009|
MUMBAI: India’s inflation slowed to 0.27 percent, giving the central bank more room to cut interest rates and prop up an economy growing at the weakest pace in six years.
The increase in wholesale prices in the week to March 14 from a year earlier followed a gain of 0.44 percent the previous week, the commerce ministry said in New Delhi. That’s the lowest inflation rate on record, according to data available since 1990 on Bloomberg. Economists expected an increase of 0.12 percent.
The finance ministry’s top economist Arvind Virmani earlier this month ruled out the possibility that India will suffer from deflation. While the wholesale index is the Asian nation’s benchmark measure for prices, India has four consumer-price indices that are running at more than 7 percent.
“Talk of deflation in India is misplaced when consumer prices are still very high,” said Rajeev Malik, a regional economist at Macquarie Group Ltd. in Singapore. “Negative prints on wholesale prices and weak economic activity may prompt the central bank to ease policy rates further.”
India’s inflation based on consumer prices paid by industrial workers stood at 10.4 percent in January. The consumer-price index for farm workers gained 11.62 percent in the same month, according to government data.
The Reserve Bank of India uses the wholesale price index as the benchmark because the consumer price indices don’t capture the aggregate price picture, unlike in other countries, said Malik. India’s statistics department said last year it is working on a plan to build a comprehensive consumer price index to use as the benchmark.
“We expect the wholesale price index readings to be negative for around two quarters,” said Sonal Varma, a Mumbai- based economist at Nomura International Ltd. “But do not confuse this with deflation. Consumer prices are still firm though we expect it to moderate with a lag to about 4 percent by the fourth quarter of this year.”
The yield on the key 10-year government bond held at 6.9 percent from immediately before the report, according to the central bank’s trading system.