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Inflation drops to 6.05 percent
By agencies
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Saturday, 03 March 2007, 00:30 IST
New Delhi: IIndia's inflation slowed for a second week, as the key wholesale price inflation rate slowed to 6.05 percent, beating expectations, as cuts in fuel prices and import tariffs made farm and manufactured products cheaper. It moved from the previous recorded 6.63 percent in the previous week, the Ministry of Commerce & Industry said. Analysts had estimated the inflation rate would be 6.25 percent.
India lowered the price of auto fuels by as much as 4.5 percent effective 16 February, the second cut in 2 1/2 months. Finance Minister P Chidambaram this week cut tariffs on diesel and other goods in his budget for the fiscal year starting 1 April. The cuts were the second in five weeks after Chidambaram in January unexpectedly cut import duties on products ranging from sulphur to steel.
Inflation stayed above the Reserve Bank of Indias tolerance level of 5 percent since September and the central bank may raise its key overnight lending rate next month for the second time this year to curb prices. Prime Minister Manmohan Singhs Congress party lost two state elections this week as inflation eroded the spending power of people.
"The economy is growing above trend and inflation is high," said Maya Bhandari, an economist at Lombard Street Research Ltd. in Mumbai. "Interest rates need to rise." Record economic growth, boosted by the fastest increase in bank loans in more than three decades and higher salaries, have stoked prices of agricultural and manufactured products. India's central bank last month unexpectedly increased the amount of cash lenders have to set aside to cover deposits for the second straight month to curb inflation.
The yield on the benchmark 8.07 percent note due January 2017 fell 2 basis points to 7.91 percent as of 12:20 p.m. in Mumbai, according to the central banks trading system.
The central bank on 13 February unexpectedly increased the cash reserve ratio, ordering commercial banks to keep cash equivalent to 6 percent of deposits starting 3 March instead of the earlier 5.5%. The measure was aimed to drain as much as Rs140 billion from the banking system, it said.