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Monday, September 01, 2008

Indian Inflation Eases Back Slightly In Mid August

India's inflation held near a 16- year high as floods in half the country damaged crops and disrupted food supplies. Wholesale prices rose 12.40 percent in the week to Aug. 16, after increasing 12.63 percent in the previous week, the commerce ministry said in New Delhi today.

The annual June-September monsoon season, which accounts for four-fifths of India's annual rainfall, has this year caused flash floods which have already displaced 12.6 million people and killed 18,859 animals, according to the national disaster management office.

Bonds rose, pushing yields to the lowest levels in almost two months. The yield on the benchmark 8.24 percent note due April 2018 slid 11 basis points to 8.77 percent as of 5:30 p.m. in Mumbai, the lowest level since July 1, according to the central bank's trading system.

The Reserve Bank last month raised its benchmark interest rate by a half point to a seven-year high of 9 percent. The reserve requirement for commercial lenders was also lifted to 9 percent from 8.75 percent.

Prices of pulses, fruits, spices, sugar and textiles rose in the week to August 16, while prices of vegetables, meat and edible oils declined, today's report showed. Manufactured price inflation rose 11.02 percent, compared with 10.91 percent in the previous week.

India's central bank, having raised interest rates to the highest in seven years, will continue to take steps to curb inflation that's risen beyond ``tolerable levels,'' imperiling economic growth.

``Inflation risks have increased sharply and appear to be persistent,'' the Reserve Bank of India said in its report for the year ending June. ``An overriding priority for monetary policy would be to eschew any further intensification of inflationary pressures.''

The Reserve Bank raised borrowing costs three times in as many months to curb inflation that's more than double its target. Rising fuel and food prices may further depress Asia's third-largest economy after growth slowed to the weakest since 2004, a report today showed.

Foreign Exchange Reserves Edge Up Slighly

During the week ended August 22, forex reserves rose by $1.08 billion to $297.29 billion. Foreign exchange reserves rose above the $300-billion mark in February this year and touched an all-time high of $316.17 billion in the week ended May 23. However, in week ending 15 August they broke the threshold in a dwonward direction.

Reserves have now declined in six of the last seven weeks.

The Rupee Continues Its Decline Against USD

India's rupee declined in August, maily on speculation oil importers exchanged the currency for dollars to pay end of month bills. The currency closed at 43.935 against the dollar as of the 5 p.m. in Mumbai on Friday - its lowest level in more than 17 months - on concern slowing economic growth and inflation near a 16-year high will prompt overseas investors to offload more local shares. That puts the rupee down 3.1% on the month.

Overseas investors has sold $7.2 billion more local shares than they bought this year as the benchmark stock index slumped 28 percent. They were net sellers of Indian stocks on all but six of the 17 trading days up to Aug. 27.

The National Stock Exchange of India Ltd. last week started trading in currency futures, the country's first, to help investors hedge their foreign-exchange risk. The total traded volume on the first day was $65.8 million.

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