India Stock Futures Decline as RBI Rate-Cut Scope Limited

Indian stocks swung between gains and losses after the central bank said before a policy meeting today that the fastest inflation among major emerging economies is limiting its ability to cut borrowing costs.

Tata Motors Ltd. (TTMT), the nation's biggest truckmaker and owner of Jaguar Land Rover, advanced from a record. Sterlite Industries (India) Ltd. (STLT), the largest copper and zinc producer, gained 1.3 percent. HDFC Bank Ltd., (HDFCB) the third-biggest lender, lost 0.8 percent.

The BSE India Sensitive Index (SENSEX), or Sensex, fell 0.1 percent to 17,129.35 at 9:39 a.m. in Mumbai, after changing direction five times. Wholesale prices grew a faster-than-forecast 6.89 percent in March, data released yesterday show. More expensive food and fuel, and a weakening currency have fanned inflation at a time when costlier credit, policy gridlock and a faltering global recovery have sapped India's economic growth, prompting speculation the Reserve Bank of India will cut interest rates.

"India's rapid reduction in inflation has now run its course given a resurgence of food-price inflation, a looming likelihood of fuel-price hikes and, not least, lax fiscal policy," Mole Hau, an economist at BNP Paribas SA, wrote in a report dated yesterday. "A substantial drop in wholesale-price inflation thus looks unlikely, hence crimping the Reserve Bank of India's scope for policy easing. We only expect a 25 basis- point repo rate cut, with the risk that the RBI will remain on hold."

Seventeen of 25 respondents in a Bloomberg survey forecast the RBI will reduce borrowing costs by 0.25 percentage point to 8.25 percent today, while three foresee a 50 basis-point cut.

Growth Risks

Five economists, including two of the top three-ranked forecasters in previous surveys, predict India will keep rates unchanged for a fourth straight meeting, joining neighbors from Pakistan to Indonesia in leaving them on hold as it juggles growth risks with price pressures.

The central bank will maintain the cash reserve ratio at 4.75 percent, according to the median estimate of 24 analysts in a Bloomberg survey. The authority pared the reserve ratio on March 9 to the lowest since 2004.

The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange of India declined 0.1 percent to 5,220.50. The BSE 200 Index (BSE200) gained less than 0.1 percent.

Overseas investors bought a net 1.72 billion rupees ($33.4 million) of local stocks on April 13, raising their investment this year to 444.4 billion rupees, according to the nation's market regulator.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net