India wholesale inflation eases

August 15, 2014 - 12:00:00 am

NEW DELHI: India’s wholesale price inflation hit a five-month low in July, data showed yesterday, but steep retail price growth means the central bank is unlikely to cut benchmark interest rates soon.

The Wholesale Price Index, closely watched to assess price rises in India, increased 5.19 percent from a year earlier — slightly above market forecasts of a 5.1 percent rise — after climbing by 5.43 percent the previous month.

The July reading was the weakest since January thanks to lower fuel prices. But higher-than-expected consumer inflation reported earlier in the week means interest rates will probably stay on hold until at least the end of 2014, economists said.

Business has been clamouring for a cut from their steep level of eight percent to help spur a sluggish economy. “I don’t see any rate cuts this year at all,” D K Joshi, chief economist at credit rating agency Crisil, said.

India has the highest borrowing costs among Asia’s major economies, discouraging investment and jeopardising revival of the economy mired in its longest spell of sub-five percent growth in a quarter-century.

While still keenly watched, the Wholesale Price Index has been ceding ground to the Consumer Price index as a measure used by the central bank to set monetary policy.

The Consumer Price Index, which more closely reflects consumers’ retail costs, rose by a higher-than-expected 7.96 percent in July from a year earlier, far above the central bank’s target of six percent by 2016.

“This 6 percent consumer price inflation target means the central bank cannot loosen rates,” Joshi said.