RBI is moving to loosen monetary policy

The deputy governor of India's central bank said today the bank is moving toward a looser monetary policy, though the timing of any easing will depend on the state of the nation's economy.

"The future action will be easing," Subir Gokarn said at the Credit Suisse Asian Investment Conference in Hong Kong. "But when will that happen and at what pace? It's a matter of judgment."

Gokarn also said higher oil prices continue to weigh on the country's fiscal deficit.

At its rate-setting meeting on March 15, the Reserve Bank of India left its key lending rate unchanged, saying that risks to inflation have increased due to a recent rise in crude oil prices, a wide fiscal deficit and a weakening rupee.

Food inflation fell lowest nearly in six years

India's annual food inflation fell sharply to 0.42 percent, its lowest in nearly six years at least,  for the week ended December 17 as vegetables, onion, potato, wheat and other essential commodities became cheaper, official data showed on Today.

In the previous week, annual food and fuel inflation stood at 1.81 percent and 15.24 percent, respectively.

The primary articles price index was up 2.70 percent, compared with an annual rise of 3.78 percent a week earlier.

India's headline inflation has stayed above 9 percent for a year, despite 13 rate increases by the central bank since March 2010.The headline inflation based on the wholesale price index was recorded at 9.11 percent in November, according to the latest official data.

The Reserve Bank of India kept policy rates on hold at its policy review early this month, sending a strong signal that its next move is likely to be an easing of monetary policy as risks to growth increase.

Food inflation came in single digit in the second week of November and has dropped consistently since then. It was recorded at 10.63 percent for the week ended Nov 5.

In the last one and half months food inflation has dropped sharply, giving the much needed respite to the economic policy makers who had been struggling for the last two years to control the price rise.

Finance Minister Pranab Mukherjee recently said that despite the recent moderation, overall inflation still remained at an unacceptable level.

Food inflation falls to 6.6%

Food inflation fell sharply to 6.60 percent for the week ended November 26, reflecting a decline in prices of essential items like vegetables, onions, potatoes and wheat.

Food inflation, as measured by the Wholesale Price Index (WPI), stood at 8 percent in the previous week ended November 19. It was recorded at 8.93 per cent in the corresponding period last year.

According to data released by the government Thursday, onions became cheaper by 39.20 percent year-on-year during the week under review, while potato prices were down by 15.75 percent. Prices of wheat also fell by 4.70 percent.

Overall, vegetables became cheaper by 1.25 percent, a big relief after double-digit inflation in vegetable prices during the months of September and October.

However, other food products grew more expensive on an annual basis, led by protein-based items.

Pulses became 13 percent costlier during the week under review, while milk grew dearer by 11.02 percent and eggs, meat and fish by 10.04 percent.

Fruits also became 10.72 percent more expensive on an annual basis, while cereal prices were up by 1.68 percent.

Inflation in the overall primary articles category stood at 6.92 percent during the week ended November 26, as against 7.74 percent in the previous week. Primary articles have over 20 percent weight in the wholesale price index.

Inflation in the non-food segment, which includes fibres, oilseeds and minerals, was recorded at 1.37 percent during the week under review, as against 2.14 percent in the week ended November 19.

The rate of price rise in non-food primary articles has fallen sharply during the past couple of months, from over 8 percent to around 1 percent, as per the latest numbers.

Fuel and power inflation stood at 15.53 percent during the week ended November 26, the same as in the previous week.

The decline in the rate of price rise in food items is likely to bring some relief to the government and the Reserve Bank, which have been facing flak from all quarters for persistently high prices.

Speaking in the Lok Sabha yesterday, Finance Minister Pranab Mukherjee said the ideal rate of inflation is around 5-6 percent.

The fall in food inflation comes as a silver lining for the government at a time when the economy is experiencing a slowdown, with GDP growth dipping to 6.9 percent in the second quarter, the lowest rate of expansion in over two years.

The eight key infrastructure industries witnessed dismal growth of 0.1 percent in October, the lowest in the past five years.

Headline inflation, which also factors in manufactured items, has been above the 9 percent-mark since December, 2010. It stood at 9.73 percent in October this year.

The RBI has hiked interest rates 13 times since March, 2010, to tame demand and curb inflation.

In its second quarterly review of the monetary policy last month, the central bank had said it expects inflation to remain elevated till December on account of the demand-supply mismatch before moderating to 7 percent by March, 2012.