September 15, 2007	Saturday	Ramazan 2, 1428

NEW DELHI, Sept 14: India’s inflation rate fell to a two-year low, official data on Friday showed, but economists expected the central bank to remain hawkish with global oil prices surging.The wholesale price index, India’s most closely watched cost-of-living monitor, showed annual inflation slowed to 3.52 per cent for the week ended September 1 -- its lowest level since August 2005 -- from 3.79 per cent a week earlier.But economists said they expected no early easing of interest rates amid worries that record international crude oil prices could trigger a rise in state-set domestic fuel prices.

“I think the bank is still hawkish, they believe inflationary expectations have not yet been doused,” D.K. Joshi, principal economist at leading credit rating agency Crisil, said.

Joshi said he expected the bank to leave benchmark rates unchanged at its next monetary policy meeting in late October.

The inflation drop, in an economy which has been growing by more than nine per cent, was spurred by a decline in some food and manufactured goods prices.

An acceleration in prices a year ago also helped make the fall look sharper.

Inflation stood at 5.34 per cent in the same week a year ago.

The annual rate marked the third straight week that inflation was below the bank’s medium-term target of four to 4.5 per cent.

But the bank’s governor Y.V. Reddy warned on Thursday that India could not remain immune to international inflationary pressures from such factors as rising global crude oil and commodity prices.

Media reports say the petroleum ministry wants a rise in government-set retail prices to staunch losses at state-owned oil firms, a move that would boost inflation. India imports about 70 per cent of its crude oil needs.

“The policy preference for the period ahead is strongly in favour of price stability,” Reddy said in what economists saw as a signal of continued vigilance.

Economic growth is expected to decline to 8.5pc to nine per cent in the financial year to March 31, 2008 as a result of successive interest rate hikes to prevent overheating that have pushed borrowing costs to five-year highs. The economy expanded by 9.4 per cent the previous year.

In the first major sign of economic slowing, figures this week showed July industrial output growth decelerated to 7.1 per cent, a sharp fall from June’s 9.8 per cent. Industrial growth was 13.2 per cent in the same month a year earlier.

“I think the bank will wait and watch to see whether this drop is a blip or whether growth has really started slipping” before deciding whether to loosen monetary policy, said Joshi.

The industrial slowdown could lead the central bank to loosen rules on lending, but an early rate cut was unlikely, other economists said.—AFP