Inflation Rates

India's Inflation Slows to 3.03%, Lowest Since 2002

March 5 (Bloomberg) -- India's inflation slowed to the lowest since
2002, giving the central bank room to add to yesterday's cut in
interest rates.

Wholesale prices climbed 3.03 percent in the week to Feb. 21 from a
year earlier after gaining 3.36 percent the previous week, the
commerce ministry said in New Delhi today. Economists expected an
increase of 3.07 percent.

Reserve Bank of India Governor Duvvuri Subbarao yesterday slashed
interest rates for the fifth time since October to revive an economy
growing at the slowest pace in six years. Economists including Rajeev
Malik said further cuts can be expected as the global recession
threatens to pummel India.

``Rapidly falling inflation, increased downside risk to growth and the
hefty market borrowing requirement of the government will prompt the
Reserve Bank to cut rates further,'' said Malik, regional economist at
Macquarie Group Ltd. in Singapore. He expects the central bank to
lower borrowing costs by another 100 to 150 basis points by June.

India's central bank yesterday reduced its key repurchase rate to an
all-time low of 5 percent from 5.5 percent and the reverse repurchase
rate to 3.5 percent from 4 percent. The bank has cut the repurchase
rate by 400 basis points since October and the reverse repurchase rate
by 250 basis points.

Bonds rose. The yield on the most-traded 8.24 percent note due April
2018 dropped 2 basis points to 6.42 percent at 12:03 p.m. in Mumbai,
according to the central bank's trading system.

Drop to Zero

The inflation rate may drop to close to zero in two months as the
price index rose at a faster pace last year, said Dharmakirti Joshi,
an economist at Mumbai-based Crisil Ltd., the local unit of Standard &
Poor's. ``It should not be a cause for concern for the central bank as
the chances of India facing a deflation are remote.''

India's wholesale-price inflation is likely to slow to below 3 percent
by the end of this month, according to the Reserve Bank.

Inflation in the week to Feb. 21 slowed as the manufactured price
inflation, with a 64 percent weight in the inflation basket, eased to
4.51 percent from 4.67 percent in the previous week. Prices of fruits,
vegetables, salt, edible oil and metals declined in the week.

While India's benchmark wholesale-price index has slowed, other gauges
of inflation that the central bank takes into account when deciding
policy are at a decade high.

Farm Workers

Inflation as measured by the consumer prices paid by industrial
workers quickened to 10.45 percent in January, the highest since
December 1998. This index takes into account prices for house rentals,
toiletries, phones and school fees.

The consumer-price index for farm workers increased 11.62 percent in
January from a year earlier, following an 11.14 percent gain in
December.

``With wholesale inflation having moderated significantly, consumer
price inflation may also be expected to decline, though with a lag,''
the central bank said.

Today's inflation rate may be revised in two months, after the
government receives additional price data. The commerce ministry today
revised the inflation rate for the week to Dec. 27 to 5.86 percent
from 5.91 percent.

To contact the reporter on this story: Kartik Goyal in New Delhi at
kgoyal @bloomberg.net.