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Silver linings in economy cloud, at last

Inflation eases, Sensex surges and rupee strengthens — will the cheer sustain? HT reports. Good news, after long

business Updated: Dec 02, 2011 01:52 IST
HT Correspondents
HT Correspondents
Hindustan Times

At last, some signs of relief - and rebound. India's food inflation rate eased to 8% for the week-ended November 19, from 9.01% in the previous week, rekindling hopes that the price monster may well be on the verge of being tamed and possibly signalling the beginning of the end of a prolonged battle between rising inflation and sliding growth.

In a coincidental blessing, the Bombay Stock Exchange's benchmark Sensex soared 2.2% or 360 points to close at 16,483.5 on Thursday, riding on positive cues from global markets following coordinated action from several central banks in Western economies that promised more money available to stimulate growth.

To crown it all, the rupee -whose weakness could increase India's oil import bill - strengthened. The sharp appreciation of the rupee which closed at 51.5 to a dollar - a gain of 30 paise compared to Wednesday's, steadied an economy bruised by falling industrial output, costly borrowings and slower hiring.

The declining trend in inflation, if it sustains, could offer some cheer to policy makers fretting on how to stimulate growth without fanning prices.

Consumers, caught between the big squeeze of rising interest rates and high cost of living, may also finally look forward to some relief as the Reserve Bank of India (RBI) may finally press the pause button on the policy of raising signal rates to stymie demand and cool prices.

The central bank has raised the repo rate - the rate at which banks borrow from RBI- 13 times in the past 19 months to tame inflation.

"If this trend continues, perhaps we may have the year-end inflation at around 6-7%," finance minister Pranab Mukherjee said. "Non-food inflation is steadily declining."

Analysts expect the bull run in equity markets to continue after the US Federal Reserve, the European Central Bank, and six European central banks said they will start freeing up funds so that banks can lend more.

"Global cues have been positive on the back of assurance by central banks that they will not allow the euro to fail. So, there's less stress on the currency, which will stabilise and there will be less pressure on withdrawals," said Deven Choksey, CEO, KR Choksey Shares and Securities.

First Published: Dec 01, 2011 21:16 IST