Reserve Bank of India governor Yaga Venugopal Reddy said yesterday that prospects of more food output this year and curbs on farm exports will boost supplies and help tame inflation, playing down chances of higher interest rates. Still, India's benchmark 10-year bond yield was unchanged at 8.23 percent, the highest in a year, after the inflation data. Inflation was mainly driven by higher costs of fuel, power and light, basic metals including steel and food grains.
India, which imports 70 percent of its oil, increased prices for gasoline by 11 percent, diesel by 9 percent and cooking gas by 17 percent after oil reached a record $135.09 a barrel in New York on May 22. India previously raised fuel prices in February, the first time since June 2006.
The changes in fuel prices announced on June 4 will be reflected in the inflation data due for release on June 20.
India's food grain production may increase to a record 227.3 million tons in the year ending June, helped by bumper rice, wheat and lentils output, the agriculture ministry said in April. It may receive an additional boost as rainfall in the four-month monsoon season that started last week is forecast to be adequate.
Foreign Exchange Reserves
India’s foreign-exchange reserves fell during the week ended May 30 by $1.6 billion to $314.6 billion, according to the Reserve Bank of India yesterday. This was the fifth week this year that this has happened, which is partly an indication that the pace of capital flows has slowed, and partly a reflection of the falling value of the rupee. Foreign-currency assets fell $1.3 billion to $304.9 billion. Gold reserves fell $225 million to $9.2 billion while its reserves with the International Monetary Fund dropped $4 million to $526 million.
The change in foreign-currency assets is partly because of changes in the value of the dollar against the euro, the yen and other currencies during the period, the central bank said.
India's foreign-exchange reserves, including overseas currencies, gold and special drawing rights with the International Monetary Fund, have increased $106.2 billion in the past year.
Meanwhile, money supply in India grew 22.5% in the two weeks ended May 23 from a year earlier, compared with 22% in the prior two weeks, the central bank data showed.
M3, which mainly comprises currency in public circulation, bank deposits and money invested in other saving plans, stood at Rs 40.8 trillion ($955.6 billion) on May 23, the Reserve Bank of India said.
The rupee declined again this week on concern stock sales by overseas funds and rising oil prices will boost demand for foreign currency. The currency pared back last week's 0.6 percent advance as data from the capital markets regulator showed overseas investors sold more Indian shares than they bought on 11 of the past 12 trading days. The rupee also weakened on speculation quickening inflation, which erodes the value of the returns from investments in the currency, will prompt funds to sell more local assets.
The rupee dropped 0.5 percent to 42.665 per dollar this week as of the 5 p.m. close in Mumbai. This makes the rupee the worst performer at the moment among the 10 most-actively traded Asian currencies excluding the yen in the past month, with a 4.2 percent loss. The rupee has dropped 7.7 percent this year after gaining 12.3 percent in 2007, the most in more than three decades.
Funds based abroad sold a net $4.3 billion in Indian shares after buying a net $17.2 billion last year, according to the Securities and Exchange Board of India.
India's trade deficit widened to a record $25.4 billion in the December quarter, according to the central bank. The cost of oil imports rose to an all-time high of $8.03 billion in March, government data show. Crude oil prices almost doubled in the past 12 months.