India’s wholesale inflation rate eased to a five-month low of 6.16% in December on plunging vegetable prices, providing some relief to the UPA government, which is battling to help the economy fight through a period of low growth and high prices ahead of the national elections.
The lower inflation rate will likely prompt the Reserve Bank of India (RBI) to keep interest rates on hold in its monetary policy review later this month.
A status quo on rates will likely defer the possibility of an immediate hike in home loan EMIs, providing some relief to consumers squeezed by high prices, flat salary hikes and costly mortgage financing rates.
Wholesale price index (WPI)-based inflation — India’s most-watched price guide — stood at a 14-month high of 7.52% in November mainly due to high prices of staples such as onions, a key ingredient in most Indian curries.
Retail inflation — a more realistic index as it captures shop-end prices — also grew at a three-month low rate of 9.87% in December from 11.16% in the previous month as fresh seasonal arrivals pushed down vegetable prices.
Equity markets rallied on expectations that lower inflation numbers will nudge RBI not to raise interest rates.
The benchmark Sensex vaulted 257 points on Wednesday to end at 21,289.49, a gain of 1.2% — the highest-closing level for the index since December 9 when it ended at a record 21,326.
Industry leaders have been demanding for an interest rate cut stating that high borrowing and raw material costs are hurting investment and hiring plans.
“With industrial production limping, we hope RBI will consider a downward revision in policy rates later this month”, said Sidharth Birla, president of industry body Ficci.