Wednesday December 31, 09:17 AM

Source: Indian Express Finance

Inflation at 6.61%, likely to reach 2% by March-end

By Economy Bureau
Inflation fell to 6.61% for the week ended December 13 from 6.84% in the previous week, below Reserve Bank of India s target rate of 7% for the second time in a row. Inflation is now widely expected to reach close to 2% by March-end and its falling pace has brightened the chances of deeper rate cuts. The finance ministry has argued for an aggressive monetary policy in its mid-term review of the economy tabled in Parliament on Tuesday. The RBI is schedule to review its monetary policy on January 27 but easing of the monetary policy is expected before that, synchronised with the second stimulus package likely to unveiled early next week. The fiscal stimulus package is expected to announce a range of duty cuts to boost spending and to announce measures aimed at improving lending to companies and consumers. The Centre has last week sough Parliament s approval for additional spending to the tune of Rs 55,604.83 crore. RBI governor D Subbarao had indicated that the bank would revise its GDP growth and inflation targets at the review meeting. Pace of price rise increase for primary articles and food items, while manufactured goods inflation rose at slower rate. Prices of essential commodities rose at a lower pace of 8.78%, down from 9.01%, while the combined food group inflation increased to 8.71% from 8.51%. However, primary articles inflation rate rose to 12.15% from 11.81%, mainly due to increase in iron ore prices, which rose 40%, the finance ministry said in a statement on Friday. Among other commodity heads, fuel and power group prices fell by (-) 0.18% compared to 0.58% inflation in the previous week. This was mainly due to the second round effects of the recent fuel price cut announced by the government. Manufactured products inflation fell to 7% from 7.32%. Markets reacted little to fresh data as inflation decline is mostly factored into. Bond markets were relatively unruffled with the 10-year benchmark bond yield briefly easing one basis point to 5.61% on Friday. The 30-share BSE Sensex (^BSESN : 16632.01 -222.92) closed down 2.51% at 9,328.92 points, after a 22% drop in advance tax payments by companies pointed towards dismal quarterly earnings next month. Outlook for inflation and worsening outlook for growth should persuade the Reserve Bank of India to reduce policy rates in the months ahead, ICICI (ICICIBANK.NS : 850.9 -14.6) Securities analyst A Prasanna said. Arvind Virmani, chief economic advisor to the finance ministry on Tuesday projected inflation to decline to 5% by March end. Inflation continues to be in single digit for seven weeks consecutively. The country s industrial output fell 0.4% in October, for the first time in 13 years, and the outlook remains bleak as indicated by a 15% fall in excise collections in November. During the week, manufactured products inflation fell with basic heavy inorganic chemicals turning cheaper by 7.2%. Also groundnut oil, sugar, cement and certain textile items like cotton yarn turned cheaper. Among food items, vegetable prices fell by more than 3% followed by tea, cereals, and spices while sea fish, wheat and bajra got dearer. Among other food articles, the prices of rice fell by 1% while fruit was dearer by 0.2%. Softening crude oil and commodity prices resulted in lower prices of pipes and tubes, which fell 5%. Prices of steel wires, zinc, steel ingots too fell. Chemical products like phenol got cheaper by 24% while industrial acid prices slipped by 17%. Prices of lead and zinc ingots declined by 2% each. However, prices of newspapers increased 2%, and those of imported edible oil and PVC resin rose by 4% each.