Inflation falls to 30-year low of 0.26%
The Financial Express, April 10, 2009, Page 3
fe Bureau, New Delhi
Inflation fell to a 30-year low of 0.26%, although manufactured prices rose marginally and prices of essential food items rose by up to 17%. Wholesale price index (WPI) -based inflation declined by 0.05 percentage points for the week ended March 28 from 0.31% in the previous week.
Even as the point-to-point inflation is near zero level, the average rate of price rise works out to be 8.4% for the fiscal 2008-09 against 4.7% in 2007-08, while the average monthly inflation in March 2009 is 0.7% as against 7.5% in March 2008, the finance ministry said in a statement on Thursday. Economic affairs secretary Ashok Chawla said domestic demand continues to remain robust. Planning Commission deputy chairman Montek Singh Ahluwalia has said that inflation will not be a problem this year.
With the inflation dropping to such a low, analysts feel that the Reserve Bank of India may signal further cut in interest rates in the medium term. RBI governor D Subbarao on Wednesday reviewed the interest rate scenario with the heads of commercial banks ahead of its annual review of the monetary policy slated on April 21.
State Bank of India on Thursday cut deposit rates by 25-50 basis points for deposits below Rs 1 crore, effective from Monday. “Given the sharp slowdown witnessed in the real economy, we expect RBI to cut repo and reverse repo rates by another 50-100 basis points before the end of this rate cycle. However, we do not expect RBI to cut interest rates immediately in the annual monetary policy,” Kotak Mahindra Bank economists Indranil Pan and Kaushik Das wrote in a note. The repo rate, currently at 5%, is the rate at which RBI lends short-term funds to commercial banks, while RBI absorbs funds from banks at reverse repo rate of 3.5%.
Subbarao has said India's economic slowdown had been steeper than estimated, but cautioned that further fiscal stimulus would carry a cost. He also expressed concern about consumer price inflation, which was running at an annual 9.6% in February.
The RBI has cut its key lending rate by 400 basis points, while the government has slashed factory gate duties and service tax to protect growth and jobs. But increased spending has led to heavy market borrowing, pushing up bond yields and undermining the impact of the central bank's rate cuts.
Some analysts have also been concerned about the heavy government borrowing crowding out private firms and feeding inflation in the months ahead. Among commodities, prices of edible items like salt, sugar, milk, cereals, pulses, manufactured food products, spices and fruits rose.
The Financial Express, April 10, 2009, Page 3
fe Bureau, New Delhi
Inflation fell to a 30-year low of 0.26%, although manufactured prices rose marginally and prices of essential food items rose by up to 17%. Wholesale price index (WPI) -based inflation declined by 0.05 percentage points for the week ended March 28 from 0.31% in the previous week.
Even as the point-to-point inflation is near zero level, the average rate of price rise works out to be 8.4% for the fiscal 2008-09 against 4.7% in 2007-08, while the average monthly inflation in March 2009 is 0.7% as against 7.5% in March 2008, the finance ministry said in a statement on Thursday. Economic affairs secretary Ashok Chawla said domestic demand continues to remain robust. Planning Commission deputy chairman Montek Singh Ahluwalia has said that inflation will not be a problem this year.
With the inflation dropping to such a low, analysts feel that the Reserve Bank of India may signal further cut in interest rates in the medium term. RBI governor D Subbarao on Wednesday reviewed the interest rate scenario with the heads of commercial banks ahead of its annual review of the monetary policy slated on April 21.
State Bank of India on Thursday cut deposit rates by 25-50 basis points for deposits below Rs 1 crore, effective from Monday. “Given the sharp slowdown witnessed in the real economy, we expect RBI to cut repo and reverse repo rates by another 50-100 basis points before the end of this rate cycle. However, we do not expect RBI to cut interest rates immediately in the annual monetary policy,” Kotak Mahindra Bank economists Indranil Pan and Kaushik Das wrote in a note. The repo rate, currently at 5%, is the rate at which RBI lends short-term funds to commercial banks, while RBI absorbs funds from banks at reverse repo rate of 3.5%.
Subbarao has said India's economic slowdown had been steeper than estimated, but cautioned that further fiscal stimulus would carry a cost. He also expressed concern about consumer price inflation, which was running at an annual 9.6% in February.
The RBI has cut its key lending rate by 400 basis points, while the government has slashed factory gate duties and service tax to protect growth and jobs. But increased spending has led to heavy market borrowing, pushing up bond yields and undermining the impact of the central bank's rate cuts.
Some analysts have also been concerned about the heavy government borrowing crowding out private firms and feeding inflation in the months ahead. Among commodities, prices of edible items like salt, sugar, milk, cereals, pulses, manufactured food products, spices and fruits rose.
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