India's inflation rate climbed faster than economists estimated, as the central bank yesterday pledged to raise interest rates in a measured way given the risks to global economic growth from Europe's debt crisis.
The benchmark wholesale-price index advanced 9.59 percent in April after a 9.9 percent gain in the previous month, the commerce ministry said in a statement in New Delhi today. The median estimate of 20 economists in a Bloomberg News survey was for a 9.5 percent increase.
India and China, the world's fastest-growing major economies, are grappling with inflation amid threats to growth emanating from the debt load of Greece, Spain and Portugal. India will exit monetary stimulus in a "calibrated" manner, Subir Gokarn, the deputy governor in charge of monetary policy at the Reserve Bank of India, said yesterday.
"The RBI will tighten rates cautiously because of the global uncertainties," N.R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy, said before the report. "Manufactured-
The yield on the benchmark 10-year bond was little changed at 7.49 percent as of 11:35 a.m. in Mumbai today, according to the central bank's trading system. The Sensitive Index rose 0.05 percent to 17,275.01 on the Bombay Stock Exchange.
Rate Increases
Bhanumurthy expects the central bank to raise interest rates by a quarter percentage point at the next monetary policy announcement on July 27.
The Reserve Bank has raised interest rates twice since mid- March. The central bank's reverse repurchase rate is currently at 3.75 percent and the repurchase rate at 5.25 percent.
Food costs, which contributed 47 percent to India's inflation rate in March, may decline as rains this year boost farm production, the central bank said last month, adding that the risk to prices now emanates from growing consumer demand for manufactured goods and services.
Food-price inflation has stayed above 15 percent since November after last year's June-September monsoon rains were the weakest in almost four decades, hurting sugar, rice and wheat output. India's weather department expects the rains to be 98 percent of the 50-year average this year, which it says is normal.
Industrial production in India grew 13.5 percent in March from a year earlier, gaining more than 10 percent for a sixth month.
Rising Prices
Higher demand is prompting companies to boost prices. JSW Steel Ltd., India's third-biggest producer of the metal, raised the cost of its flat products by as much as 1.5 percent in May while Indian Oil Corp., the nation's second-largest refiner, increased jet fuel prices in April.
In China, where industrial production rose 17.8 percent in April, consumer prices climbed at the fastest pace in 18 months, adding pressure on policy makers to raise interest rates and allow yuan gains.
"The trends in India's growth and inflation warrant further policy normalization," Indranil Pan, chief economist at Mumbai-based Kotak Mahindra Bank Ltd., said before the report. "Given the global uncertainties, we believe the chances of that happening are declining before the July policy" statement.
The European Union mounted an unprecedented effort to halt a collapse of confidence in the ability of members including Greece, Spain and Portugal to sustain their debt. Governments, with International Monetary Fund backing, this week pledged almost $1 trillion to prevent financial instability, days after agreeing to a 110 billion-euro ($138 billion) rescue of Greece.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.
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