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Inflation rises, rates still seen on hold

Rising food and manufactured product prices push annual wholesale inflation up more than expected in late June.

business Updated: Jul 13, 2007 14:30 IST

Rising food and manufactured product prices pushed India's annual wholesale inflation up more than expected in late June, but analysts still expect the central bank to keep interest rates steady at a July 31 policy review.

The widely tracked wholesale price index rose 4.27 per cent in the 12 months to June 30, higher than the previous week's increase of 4.13 per cent, data showed on Friday.

Inflation was higher than a median forecast of 4.12 per cent in a Reuters poll, and a 14-month low of 4.03 per cent in mid-June, but is still comfortably below the central bank's projection of 5 per cent for the financial year ending March 2008.

Indranil Pan, chief economist at Kotak Mahindra Bank, said the rise in inflation was a bit surprising.

"However, this could be due to disruptions of goods movement across the country due to inclement weather, and for the rest of the first half of the fiscal year we expect the numbers to be within the central bank's comfort band."

The yield on the benchmark 10-year bond was at 7.93 per cent, up slightly from 7.92 per cent before the data, while the rupee was steady at 40.47 per dollar.

Annual inflation hit 6.69 per cent on Jan 27, its highest in more than two years, but softened as the central bank tightened policy and the government cut duties on a range of items.

Policy makers expect moderate inflation in coming months as previous policy tightenings take effect, and economists surveyed by Reuters this week do not expect the central bank to raise interest rates at its July review.

"There is no pressure on interest rates," said Saumitra Chaudhuri, an economic adviser at rating agency ICRA.

The Reserve Bank of India kept its short-term lending rate steady at its previous review in April, after raising it five times since last June.

The wholesale price index is more closely watched than the consumer price index (CPI) because it includes a higher number of products and is published weekly. The CPI is released monthly.