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Sunday, March 02, 2008

India Wholesale Inflation 16 February 2008, Forex Reserves and the Rupee

India's inflation accelerated to an eight-month high in the middle of February after the government raised retail prices of gasoline and diesel for the first time in more than 1 1/2 years. The upward swing in inflation is very evident in the chart below. In fact wholesale prices climbed at a year on year rate of 4.89 percent in the week ended Feb. 16, up from the previous week's 4.35 percent gain, according to data from the Ministry of Commerce and Industry.

On Feb. 14 the Indian government raised gasoline prices by 4.5 percent, the first increase since June 2006, in an attempt to cut losses at oil companies and lower the burden of record crude oil costs.

The dollar value of India's foreign exchange reserves continued to climb reaching 294.6 billion dollars by 22 February, up from 292.8 billion a week earlier. Also overseas investors bought an average $77.9 million of Indian equities more than they sold each day in February up to Feb. 27, compared with net sales of $185.7 across the whole of January, according to data presented on Friday by the Securities & Exchange Board of India.

India's rupee completed its worst month since May 2006 on speculation refiners increased purchases of dollars to pay for crude oil after the commodity's price rose to a record.

The currency ended two months of gains as oil reached an all-time high of $103.05 a barrel, boosting import costs for India, which depends on shipments from overseas to meet three- quarters of its energy needs. The rupee fell 1.4 percent this month to 40.0125 per dollar at 5 p.m. in Mumbai on Friday 29th February.

Crude oil has advanced 6.2 percent so far this year after rising 57 percent last year, the sixth straight annual gain and the biggest since 2002. India imported an average $5.1 billion of oil a month in 2007, higher than $4.7 billion in 2006.

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