India Inflation 12 April 2008

India's inflation accelerated to what is nearly the fastest pace in more than three years at the begining of April, maintaining pressure on the central bank to do more to restrain prices after squeezing the money supply last week. Wholesale prices rose 7.33 percent in the week ended April 12 from a year earlier, after gaining 7.14 percent in the previous week and 7.41 percent the week before, the Ministry of Commerce and Industry said in New Delhi today.



The central bank may introduce more measures to contain inflation in its April 29 monetary-policy announcement, Finance Minister Palaniappan Chidambaram has said.

Yields on India's benchmark 10-year government bond held near the highest since June after the inflation report. The yield on the 8.24 percent note due in April 2018 was little changed at 8.18 percent as of 12:20 p.m. in Mumbai. The price was 100.40 per 100 rupee face amount.

The Reserve Bank of India on April 17 raised the so-called cash reserve ratio to a seven-year high of 8 percent from 7.5 percent. The move reduces the supply of money in the financial system by forcing commercial banks to park more money with the central bank.

Inflation in India has doubled in the last four months, a development which has lead the government to ban commodities exports and abolish import duties in an attempt to to safeguard domestic supplies and contain prices. During the last month import taxes on edible oils and pulses have been scrapped and the export of commodities like rice and cement has been banned.

India's Finance Minister Palaniappan Chidambaram said today that the Indian government will seek to maintain the nation's economic growth momentum whilst also taking steps to curb inflation. This ambition is laudible but very challenging to actually carry through, in my ever so humble opinion.

``Though the measures to contain inflation may result in some moderation in the economic growth, it is the endeavor of the government to sustain the current momentum of high growth with price stability,'' Chidambaram said in a written reply to a question in parliament today.

Foreign exchange reserves for the week ended April 11 increased by a modest $482 million to reach $312.367 billion, due to a rise in foreign currency assets, according to the Reserve Bank of India’s Weekly Statistical Supplement.

In the previous week, the foreign exchange reserves rose by $2.724 billion to touch $311.885 billion.

Foreign currency assets increased by $ 426 million to touch $ 301.820 billion. Foreign currency assets expressed in US dollar terms include the effect of appreciation or depreciation of non-US currencies (such as euro, sterling, yen) held in reserves.

India's Inflation Steady and Reserve Bank of India Raises Cash Reserves Level

India's inflation held steady near a three- year high at the start of April , buttressing expectations the government may announce more measures this month to tame runaway prices. Wholesale prices rose 7.14 percent in the week ended April 5 from a year earlier, after gaining 7.41 percent in the previous week, the Ministry of Commerce and Industry said in New Delhi today.



Finance Minister Palaniappan Chidambaram yesterday said the government will act against cartels and is prepared to sacrifice revenue to help contain price gains. Faster inflation, fuelled by soaring commodity and food costs, will impede growth and slow poverty reduction, according to Prime Minister Manmohan Singh.

India's central bank also told lenders to set aside more deposits as reserves starting next week to temper inflation that's running near a three-year high.

Cash Reserve Ratios Up

The Reserve Bank of India increased the so-called cash reserve ratio to 7.75 percent starting April 26 and to 8 percent effective May 10 from 7.5 percent now. The decision will drain as much as 185 billion rupees ($4.6 billion) from the banking system, the central bank said in a faxed statement in Mumbai today.

The increase is the first in 2008 and comes after several fiscal measures by the government earlier this month, including bans on the export of some food staples.

Before today's decision Reserve Bank Governor Yaga Venugopal Reddy had raised the central bank's key policy rates nine times since October 2004 and the cash reserve ratio five times since December 2006.

Draining cash from banks will help check consumer demand and prevent inflation, driven up by food and commodity prices, from accelerating. The step compliments the fiscal measures announced by the government to cool price gains ahead of elections in a year's time.

India also plans to import 1 million metric tons of edible oils to curb prices as demand rises amid a shortfall in the domestic crop, Agriculture Minister Sharad Pawar said yesterday. The government will also import more pulses in an attempt to cool prices.

The yield on India's benchmark bonds climbed to the highest since June. The yield on the 7.99 percent note due July 2017 rose 4 basis points to 8.12 percent as of the 5:30 p.m. close in Mumbai. The price fell 0.23, or 23 paise per 100 rupee face amount, to 99.17. A basis point is 0.01 percentage point.

India Industrial Production February 2008

India's industrial production grew at the fastest pace in four months in February as record investment in power plants and factories boosted demand for electricity and cement. Production at factories, utilities and mines rose 8.6 percent from a year earlier after gaining a revised 5.8 percent in January, the statistics office said in New Delhi today.




Manufacturing, which accounts for about 80 percent of India's industrial production, gained 8.6 percent in February from a year ago, according to today's report. Electricity output rose 9.8 percent, the most in 17 months. Mining grew 7.5 percent.

India Wholesale Inflation and Foreign Exchange Reserves 29 March 2008

India's inflation accelerated to the fastest pace in more than three years, raising concern the central bank may increase borrowing costs at the next meeting later this month. Benchmark bond yields climbed to a nine-month high. Wholesale prices rose 7.41 percent in the week ended March 29 from a year earlier, faster than the previous week's 7 percent gain, the Ministry of Commerce and Industry said in New Delhi today.

Reserve Bank of India Governor Yaga Venugopal Reddy has raised the cash reserve ratio, or the proportion of deposits commercial lenders need to place with the central bank, five times since December 2006. He has lifted the central bank's key policy rates nine times since October 2004 to check inflation.

India this week is holding the biggest sale of debt since January to reduce the supply of money in the financial system and temper prices. The central bank plans to sell 230 billion rupees ($5.8 billion) of bonds and bills this week, including 90 billion rupees of securities to drain excess money from the banking system.

The central bank will make an ``apt'' response in its April 29 policy announcement to tackle inflation, Deputy Governor Rakesh Mohan said on April 9. The authority kept the key repurchase rate unchanged at 7.75 percent at the last monetary policy announcement on Jan. 29.

Oil touched an unprecedented $112.21 a barrel on April 9 in New York. Palm oil, used mostly for cooking, reached a record 4,486 ringgit ($1,423) a metric ton on March 4, and wheat in Chicago has more than doubled in the past year, reaching an all- time high of $13.495 a bushel on Feb. 27.

The government today scrapped export incentives for rice, steel and cement to boost local supplies and tame inflation, which is choking economic growth and driving up costs. Trade Minister Kamal Nath, who announced the withdrawal of export inducements in New Delhi, said the central bank must also act to contain price gains. Bonds declined for a second day on speculation the Reserve Bank of India may increase borrowing costs as soon as this month.

India's government this month scrapped import duty on crude edible oil and banned the export of rice and pulses to boost supplies and drive down prices. The government also elicited assurances from steelmakers on April 2 to restrict price increases to help cool inflation.

Foreign Exchange Reserves Rise Again

India's foreign exchange reserves rose $2.7 billion to touch $311.9 billion during the week ended April 4, partly on account of RBI intervention to mop up excess dollar inflow. the Reserve Bank of India (RBI) said in its weekly statistical supplement (WSS), in Mumbai. While the value of gold in reserves rose $481 million, the value of SDR and reserves with the IMF dipped $1 million and $15 million respectively.





The change in foreign-currency assets is partly because of changes in the value of the dollar against the euro, yen and other currencies during the period, the central bank said. The country's foreign-exchange reserves rose Rs 3, 81,923 crore over the past year, the bank said. The RBI bought $3.88 billion of foreign currency in February, its 16th straight month of purchases. The central bank's currency purchases in February fell 72% from a record $13.6 billion in the previous month. The RBI bought a total $75.4 billion in the first 11 months of the fiscal year ended March 31, boosting foreign- exchange reserves to a record $309.2 billion as of March 28.

Regarding the updated money M3 supply figures, the total stock of money in the system amounted to Rs 39,98,887 crore, up Rs 1,21,615 crore - or 2.07% -over the previous fortnight’s figures. While the currency with the public dipped Rs 2,017 crore, demand deposits and term deposits rose Rs 77,288 crore and Rs 45,919 crore respectively.

On another front revised loan figures show that the slowdown in credit offtake has been steeper that the earlier indicated. During FY08 credit rose 21.6% against 28.1% in the previous year.

According to the figures released in the weekly statistical supplement (WSS), total bank credit amounted to Rs 23,48,493 crore as on March 28, up Rs 75,891 crore over the previous fortnight’s. While food credit rose Rs 894 crore, non-food credit rose Rs 74,997 crore during the fortnight.

For the year 2007-08, credit rose 21.6% as compared to 28.1% in the previous year. Aggregate deposits mobilised by commercial banks amounted to Rs 31,92,141 crore as on March 28, up Rs 1,16,917 crore over the previous fortnight’s. While demand deposits rose Rs 74,010 crore, term deposits rose Rs 42,907 crore. Annual deposit growth for the year works out to lower at 22.1% as a compared to 23.8% in the previous year.


Rupee Gains


At the same time India's rupee traded near the highest this month on speculation the central bank will allow gains in the currency to keep inflation from accelerating.




The rupee was little changed at 39.955 a dollar at 5 p.m. in Mumbai, from 39.945 yesterday.