MUMBAI: India’s wholesale inflation eased 0.39 percent in January, a second fall in three months, aided by a drop in fuel prices, data showed on Monday.
The fall in the Wholesale Price Index (WPI), the inflation measure with the biggest basket of goods, belied expectations of a 0.11 percent rise as forecast in a Bloomberg survey and raised hopes for more interest rate cuts.
Prime Minister Narendra Modi’s right-wing government also revised the November WPI inflation number to as drop of 0.17 percent from 0.0 percent earlier, but maintained the December number at 0.11 percent.
“The latest numbers (of WPI) indicate that chances of rate cuts in April are very much alive,” said Arun Singh, senior economist at Dun & Bradstreet.
Hopes of significant rate cuts from the Reserve Bank of India (RBI) had faded last week after economic growth, based on a new formula, came in an unexpectedly robust 7.4 percent in the ongoing year.
A lower number was expected as India was thought to be struggling through its worst economic slowdown in more than two decades by growing below five percent, not enough to create jobs needed for its millions of young people.
Dampened economic activity was visible once again in the industrial output data that pegged production in India’s mines and utilities at 1.7 percent even as consumer prices rose 5.11 percent.
The economic slowdown prompted RBI governor Raghuram Rajan to cut interest rates by 25 basis points in January, a first in 20 months.
Rajan, justified the unexpected action three weeks before a scheduled policy meeting by saying the RBI had promised not to keep rates high for “a second longer” than needed.
He then refrained from reducing rates further during the policy meeting saying the bank wanted to wait for the government’s budget on February 28 to understand how public finances were going to shape up.
The central bank in India is not only the chief monetary authority but is also responsible for ensuring the smooth passage of government’s market borrowings.
“The RBI has indicated its willingness to cut rates. It is now up to the government to underline how it will deliver fiscal consolidation while boosting revenue through the budget,” Singh of Dun & Bradstreet told Agence France-Presse.