NEW DELHI: India’s consumer price inflation slid unexpectedly in September to its lowest in nearly three years, data showed yesterday, giving greater scope for an interest rate cut that could spur a stuttering economy.
Consumer inflation tumbled to 6.46 percent in September, down from August’s revised 7.73 percent, and far better then a consensus market forecast of 7.1 percent.
Consumer inflation was riding at over 10 percent last year but Reserve Bank of India governor Raghuram Rajan’s aggressive policies to curb price rises appeared to be paying dividends, economists said.
“One shouldn’t read too much into one set (of numbers) but it’s looking increasingly likely the bank will meet its inflation targets,” allowing interest rates to be cut sooner than expected, Capital Economics chief Asia economist Mark Williams said. “The RBI could start loosening monetary policy earlier than expected, especially with industry essentially still on its back,” Williams said.
September’s consumer inflation was the lowest since the government introduced the current price index in January 2012 and below the RBI’s target of eight percent for January 2015.
Rajan, who has declared he wants to “break the back of inflation”, a persistent problem in India, has set a goal of wrestling down consumer inflation to six percent by January 2016. Figures late last week showed industrial production grew by an unexpectedly weak 0.4 percent year-on-year in August, fuelling business calls for rate cuts to spur investment and consumer spending.
September’s consumer inflation drop was helped by bountiful rains in the last stages of a patchy monsoon that reduced food prices — a huge issue in India where a quarter of the 1.2-billion population lives in deep poverty, according to World Bank data.
Global crude oil prices, which have fallen nearly 20 percent this year, have also lowered inflation in the fuel-import dependent nation.
More positive inflation news was expected today with wholesale price data, another widely watched indicator, seen hitting a five-year low of around 3.7 percent, according to economists.
“The RBI will find some comfort in these numbers,” said global consultancy Deloitte India senior director Anis Chakravarty. But “it’s important to see whether this trend continues,” he added.
Analysts worry inflation may remain an endemic problem as long as problems persist with ramshackle rail, road and other transport, antiquated machinery and bureaucratic red tape, which slow down production and deliveries.
Most economists have said they expect the RBI to keep rates steady until the next financial year in April. Last week, the central bank left interest rates on hold at a steep eight percent.
India’s economy has posted two years of sub-five-percent growth, the longest slowdown in a quarter century. But foreign investors have been pouring money into Indian stocks in hopes the new right-wing government’s moves to move infrastructure projects along and create a more favourable business climate will lift growth and help the country emulate rival China’s economic ascent.
AFP
