India’s consumer-price growth eased more than analysts estimated in January and factory output fell in December following an increase in interest rates as central bank Governor Raghuram Rajan fights Asia’s fastest inflation.
The consumer-price index rose 8.79 percent from a year earlier, compared with 9.87 percent in December, the Statistics Ministry said in New Delhi yesterday.
Rajan pledged to fight inflation and preserve the value of the rupee when he boosted borrowing costs last month as the U.S. reduced monetary stimulus. Higher rates have taken a toll on consumer demand, with another report yesterday showing industrial output shrank 0.6 percent in December.
“There is no relief until the inflation rate reaches 8 percent,” said Indranil Pan, a Mumbai-based economist at Kotak Mahindra Bank Ltd. “The RBI will look at inflation on the whole, and this fall does not impact their stated position.”
The rupee, down about 13 percent versus the dollar in the past year, strengthened 0.2 percent to 62.11 per dollar in Mumbai yesterday. The S&P BSE Sensex (SENSEX) index advanced 0.4 percent. The yield on the government bond due November 2023 rose to 8.81 percent from 8.74 percent on Feb. 11. The data were published after the close of trading.
The MSCI Emerging Markets Index has lost about 5 percent this year. India, Brazil, Indonesia,South Africa, and Turkey are “among the economies that appear to have been the most affected” by the sell-off, according to a report presented to the congressional committee.
"Curbing inflation is crucial to attaining faster growth rates", Rajan said.
Inflation in food, beverages, and tobacco, which account for about half of the consumer-price index’s basket of goods and services, exceeded 12 percent in December. It was 9.9 percent in January, the Statistics Ministry report showed.
A central bank panel in January proposed reducing CPI to 8 percent within one year and 6 percent by 2016, and that the RBI should then adopt a 4 percent target with a band of plus or minus two percentage points. Further tightening isn’t anticipated in the near term if consumer inflation slows to 8 percent by early 2015, the central bank said Jan. 28.
India forecasts its economy will expand 4.9 percent in the 12 months through March 31, faster than the decade-low expansion of 4.5 percent last year, the statistics ministry said last week. If inflation slows, Asia’s third-biggest economy can grow between 5 percent and 6 percent in the fiscal year starting April 1, the RBI predicts.
Prime Minister Manmohan Singh said last month his government could’ve done a better job at controlling inflation after the Congress Party got trounced in state elections. Opinion polls show the main opposition Bharatiya Janata Party winning the most seats in national polls due by May while falling short of a majority.
Standard & Poor’s warned in November that India’s credit rating may be cut to junk unless the election leads to a government capable of reviving growth.
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