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Indian inflation dips, raises hope for rate cut

January 14, 2013

The photo shows an Indian bank note. - File Photo
The photo shows an Indian bank note. - File Photo

MUMBAI: Indian inflation eased marginally in December to 7.18 per cent year-on-year, data showed Monday, raising expectations of an interest rate cut when the country's central bank meets later this month.

Inflation was down slightly from 7.24 per cent in November and has been on the decline since October, government figures show.

The latest reading in the Wholesale Price Index – India's most widely watched inflation measure – was lower than market forecasts of 7.44 per cent, according to a survey by Dow Jones Newswires.

The easing of inflation is likely to encourage the Reserve Bank of India (RBI) to start shifting its focus from an anti-inflationary to a pro-growth stance.

“The numbers are a relief and core inflation is easing,” said Siddhartha Sanyal, chief India economist with Barclays Capital, who expects an interest rate cut of 25 basis points at the next RBI meeting.

India's central bank, which meets on Jan 29 to consider monetary policy, faces pressure from businesses and the government to start cutting rates in an effort to spur economic growth that has slowed dramatically.

India's economic growth fell to 5.3 per cent in the July-September quarter, extending a slowdown since the start of the year.

Last week, data showed industrial output shrank by 0.1 per cent in November from a year ago, the latest signs of economic distress in Asia's third-biggest economy.

Countries such as China, South Korea and Brazil have all cut interest rates in a bid to protect their economies from the effects of the eurozone debt crisis.

But the RBI – which last cut rates in April – has remained concerned by inflation that has been above its “comfort” level of five per cent.