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Inflation Accelerates To 6.95% In February

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Indian wholesale price index (WPI) rose a faster-than-expected 6.95 per cent in February from a year earlier, mainly driven by a surge in food prices, government data showed on Wednesday.

Analysts on average had expected an annual rise of 6.79 per cent, a Reuters poll showed. Wholesale prices rose 6.55 per cent in January, the slowest in 26 months.

The annual reading for December was revised up to 7.74 per cent from 7.47 per cent, the government said in the release.

The WPI is a more closely tracked indicator of India's inflation than the consumer price index (CPI) as it covers a higher number of products.


This is what experts had to say about the spurt in inflation

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
"This figure is still a repressed number because the complete pass-through of global oil prices has not happened. If you take just the direct impact of global oil prices at current levels, then the headline inflation number could at least be 90-100 basis points higher.

"The Reserve Bank of India would start lowering interest rates in the next fiscal year 2012/13, but given the fiscal slippage of the government the pace would be gradual. I don't expect the RBI to cut interest rates before the annual monetary policy statement in April."

DARIUSZ KOWALCZYK, SENIOR ECONOMIST AND STRATEGIST, CREDIT AGRICOLE CIB, HONG KONG
"The sharper-than-expected rise is negative for the INR and should push INR OIS rates up, especially at the short end, as it almost guarantees no rate cut this week. We still see a cut in Q2."

MARKET REACTION
* The benchmark 10-year 8.79 percent, 2021 bond was steady at 8.35 percent immediately after the data.

* The benchmark five-year swap rate and the one year swap rates were unchanged at 7.53 percent and 8.10 percent, respectively.

* The partially convertible rupee was unmoved at 49.9 per dollar.

BACKGROUND:
- The Reserve Bank of India is expected to hold interest rates steady at its policy review on Thursday ahead of the federal budget, a Reuters poll showed on Monday.

- India's factory output grew at its fastest in seven months in January, powered by a surge in manufacturing including consumer non-durables, and is likely to give some space to the RBI to defer its policy easing.

- Finance Minister Pranab Mukherjee is expected to announce measures, including increase in tax rates to trim federal fiscal gap, when he presents the annual federal budget on Friday.

- The RBI last week slashed the cash reserve ratio (CRR), the proportion of deposits that banks must keep with the central bank, by 75 basis points.

- Car sales in India rose an annual 13.1 percent in February as buyers rushed to showrooms ahead of a budget seen raising the cost of vehicles.

- India's services sector lost momentum in February and firms shed workers for the first time in three months, a business survey showed.

- India's economic growth slowed to 6.1 percent in the three months to December. The government has forecast the economic growth in the fiscal year ending March 31 to dip below 7 percent for the first time in three years.

(Reuters)


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