India inflation remains unchanged at five-year low

NEW YORK — India’s inflation remained unchanged in the second week of October, staying near a five-year low, easing pressure on the central bank to increase rates at its meeting next week.

By (Bloomberg)

Published: Sat 27 Oct 2007, 8:40 AM

Last updated: Sat 4 Apr 2015, 11:30 PM

Wholesale prices increased 3.07 per cent in the week ended October 13 from a year earlier, the same as the previous week, the Ministry of Commerce and Industry said today in New Delhi. Analysts had forecast inflation at 3 per cent.

The Reserve Bank of India, the central bank, which meets October 30 to set monetary policy, may maintain interest rates at a five-year high. A high level of “liquidity,” record high international oil prices and rising local commodity prices could threaten India’s inflation target of 5 per cent this year, according to Standard & Poor’s.

“The issue of liquidity overhang continues to pose a challenge for the Reserve Bank of India in containing inflationary pressures,” Shubhada M. Rao, chief economist at Yes Bank Ltd. in Mumbai, said before yesteday’s inflation announcement. “I don’t see a case right now for the central bank to cut policy rates.”

Overseas investors have bought $18.7 billion of stocks and bonds in India so far this year, exceeding the previous record of $9.46 billion in 2005, lured by the second-fastest pace of growth among major economies. Excess cash in the banking system may fuel consumer demand and fan inflation.

The Securities & Exchange Board of India, the capital market regulator, yesterday announced controls to moderate overseas investment in shares on concern the record inflows are threatening growth.

Finance Minister Palaniappan Chidambaram said October 24 that “bubbles” in stocks and real estate may hamper growth as inflows drive the rupee to a 9 1/2-year high and stoke inflation.

India’s central bank, since December, has focused mainly on raising the cash reserve ratio, or the proportion of deposits that commercial banks have to place with it as reserves, to check money in the banking system and curb inflation.