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Friday, March 28, 2008

India Inflation March 15, Foreign Exchange Reserves

India's inflation accelerated to a 13-month high, constraining the central bank's ability to cut interest rates to try to counteract an economic slowdown. Wholesale prices rose 6.68 percent in the week ended March 15 from a year earlier, significantly faster than the previous week's 5.92 percent, the Ministry of Commerce and Industry said in New Delhi. There is now no mistaking the sharp upward movement in Indian wholesale price inflation, and this will make Chidambaram's job considerably more difficult.

The inflation rate has almost doubled since the last week of November, stoked by food and commodity costs. Manufacturing price inflation is also catching up now, accelerating to a one- year high of 6.27 percent in the week ended March 15 from 4.21percent at the start of the month.

"I assure you that the government is determined to take all necessary steps, fiscal, monetary and supply side, to moderate inflation," Chidambaram told reporters in Mumbai today. "If that means we have to live with slightly lesser growth, so be it."

The rupee rebounded after the inflation data, recording the biggest weekly advance since September closing stronger than 40 a dollar for the first time in a month on speculation policy makers will allow gains in the currency to offset rising prices. The rupee has gained 1.3 percent this week to 39.8875 per dollar as of the 5.00 p.m. close in Mumbai.

Foreign exchange (forex) reserves dipped by $1.8 billion during the week ended March 21, as the Reserve Bank of India (RBI) sold dollars during the week to meet the dollar demand.

According to the latest figures released by the central bank, total forex reserves in the country, including gold and SDR, dipped $1,831 million to touch $304.66 billion. The dip in reserves is also partly on account of revaluation of non-dollar assets in the reserves vis-a-vis the dollar. The week also saw a sharp dip in the domestic stock market indices prompting many foreign investors to take money back home.