India’s inflation cools but rate cut unlikely

NEW DELHI, June 14, 2013 (AFP) – India’s inflation cooled to a more than three-year low in May, data showed Friday, but the rupee’s plunge will likely stall any interest rate cut to kickstart the ailing economy. The Wholesale Price Index, India’s most most closely watched inflation gauge, dropped to 4.7 percent in May on an annual basis, down nearly two-tenths of a percentage point from its 4.89 percent level in April.

The broadly based wholesale price inflation reading, the lowest since late 2009, was well below market forecasts of a 4.9 percent rise.

It was also inside the central bank’s so-called 5.0 percent “comfort zone”, even though the narrower-based retail inflation measure is double the level near 10 percent.

But the Indian currency’s slide to a lifetime low of 58.98 rupees to the dollar earlier in the week has sparked fears inflation could resurge as a key problem in India, which buys 80 percent of its crude oil from abroad.

“We doubt this (inflation fall) will persuade the central bank to cut the repo rate,” said Credit Suisse economist Robert Prior-Wandesforde, citing a combination of rupee’s weakness, high retail price inflation and expected poor trade data.

The rupee was at