By Matthias Williams
NEW DELHI | Wed Nov 14, 2012
3:17pm IST
(Reuters) - India's headline
inflation unexpectedly eased to
its slowest pace in eight
months in October, a welcome
relief from a string of bad data
but still high enough to be a
headache for policymakers
struggling to balance the need
for growth with taming prices.
Wholesale prices - India's main
inflation gauge - rose an annual
7.45 percent, the slowest pace
since February, government data
released on Wednesday showed.
The figure was slower than the
7.81 percent recorded in
September, as food and fuel prices
rose less quickly, and less than the
7.96 percent predicted in a Reuters
poll of analysts.
With India's economy on track to
grow at its worst pace in a decade,
and a general election due in just
over a year, the government has
been pressing the Reserve Bank of
India (RBI) to cut interest rates to
revive growth. But the central bank
has rebuffed those calls, saying
prices are still rising too fast to
risk loosening policy.
The latest inflation reading is still
seen as too high for the RBI to bow
to pressure from the government
and businesses by cutting rates at
its next policy review in December.
However, it could do so early next
year.
"Despite the downtick, elevated
inflation will prevent the RBI from
easing aggressively," said Jyoti
Narasimhan, senior principal
economist, IHS Global Insight.
"With inflation unlikely to recede
substantially, we no longer expect
the RBI to soften its stance and cut
policy rates on 18 December to
support flagging economic growth."
India's financial markets were
closed on Wednesday for a festival.
India rates, WPI graphic
link.reuters.com/saq26s
DISMAL DATA
Data on Monday showed the
monthly trade deficit climbed to its
highest-ever level, while industrial
production surprisingly contracted,
dashing hopes that the economy
was regaining traction.
Prime Minister Manmohan Singh's
government is trying hard to get
the economy back to the near
double-digit growth that helped
project India as a rising global
power and helped Singh's Congress
party win two back-to-back
elections since 2004.
But with state polls looming and a
general election due in 2014, an
economic revival would help Singh
generate resources to fund big-
ticket welfare programmes meant
for his party's core constituency
comprising poor and rural voters.
It would also help mitigate anger at
rising prices.
Singh said in a speech over the
weekend that his government had
"dispelled doom and gloom" about
the economy with a series of policy
steps, including curbing fuel
subsidies and liberalising foreign
investment rules.
But investors are clamouring for
the government to do more. They
want Singh to push ahead with a
reform agenda that has progressed
fitfully, calling for a more
business-friendly tax regime and
speedier clearances for
infrastructure projects.
Singh has faced opposition to
flagship policies from powerful
regional allies as well as opposition
parties, setting the stage for
another stormy parliament session
when it reconvenes on Nov 22.
"The (inflation) number is better
than what most people had
expected, but based on the past
experiences there is a likelihood of
the numbers getting revised," said
Rupa Rege Nitsure, chief economist
at Bank of Baroda in Mumbai.
The government revised up August
inflation to 8.01 percent from the
7.55 percent initially reported.
"The Reserve Bank will wait till the
headline inflation falls by 100 basis
points more. The government is
putting on pressure, but the
Reserve Bank will not succumb to
that pressure until the inflation
comes down to the comfort zone,"
Rupa Rege Nitsure said. (Additional
reporting by the Mumbai bureau
and Arup Roychoudhury in New
Delhi; Editing by Simon Cameron-
Moore & Kim Coghill)
October inflation surprises; slowest in 8 months | Reuters
A much awaited news
