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India wholesale inflation eases but no rate cut seen

India's wholesale price inflation hit a five-month low in July, data showed Thursday (Aug 14), but steep retail price growth means the central bank is unlikely to cut benchmark interest rates soon.

NEW DELHI: India's wholesale price inflation hit a five-month low in July, data showed Thursday (Aug 14), but steep retail price growth means the central bank is unlikely to cut benchmark interest rates soon.

The Wholesale Price Index, closely watched to assess price rises in India, increased 5.19 per cent from a year earlier - slightly above market forecasts of a 5.1 per cent rise - after climbing by 5.43 per cent the previous month.

The July reading was the weakest since January thanks to lower fuel prices. But higher-than-expected consumer inflation reported earlier in the week means interest rates will probably stay on hold until at least the end of 2014, economists said.

Business has been clamouring for a cut from their steep level of eight per cent to help spur a sluggish economy. "I don't see any rate cuts this year at all," D K Joshi, chief economist at credit rating agency Crisil, told AFP.

India has the highest borrowing costs among Asia's major economies, discouraging investment and jeopardising revival of the economy mired in its longest spell of sub-five per cent growth in a quarter-century.

While still keenly watched, the Wholesale Price Index has been ceding ground to the Consumer Price index as a measure used by the central bank to set monetary policy.

The Consumer Price Index, which more closely reflects consumers' retail costs, rose by a higher-than-expected 7.96 per cent in July from a year earlier, far above the central bank's target of six per cent by 2016. "This six per cent consumer price inflation target means the central bank cannot loosen rates," Joshi said.

The economy grew by 4.7 per cent last financial year, just under half the pace recorded a few years ago.

India's new right-wing prime minister Narendra Modi rode to power in elections in May on promises of reviving the economy. Recent growth indicators have been contradictory, with industrial production expanding by just 3.4 per cent in June, undershooting market forecasts.

But other data surveys giving more current snapshots of economic activity have been more favourable. "Mixed signals will continue to emanate from the Indian economy" for coming months, said Arun Singh, senior economist at credit data firm Dun & Bradstreet.

Annual monsoon rains running at 18 per cent below average are another uncertainty hanging over the economy. The below-normal rains threaten to damage crops, stoke food inflation and act as another restraint on growth. 

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