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New Delhi: Indian inflation breached four per cent in late January, its highest in nearly five months, and analysts said the upswing meant the central bank was unlikely to loosen its grip on rates anytime soon despite slowing growth.
The wholesale price index rose 4.11 per cent in the 12 months to January 26, higher than the previous week's rate of 3.93 per cent and above a median forecast of 3.97 per cent in a Reuters poll of analysts, data showed on Friday.
The country's inflation is still below the central bank's comfort level of five per cent but it is expected to head up further in the weeks ahead with high food and fuel prices at home and in global markets posing a risk.
"Inflation is coming back to where it was initially expected to be. We maintain the view that inflation should be between 4.0-4.5 per cent by the end of the financial year," said Shuchita Mehta, chief India economist at Standard Chartered Bank.
"We still remain concerned over high agri-commodity prices as well as local crude oil prices which might keep the central bank on hold for an extended period of time despite weakness on the global economic front."
India's statistics office said on Thursday the economy was expected to expand 8.7 per cent in the fiscal year ending March 2008, slower than the previous year as higher interest rates dent consumer demand.
Markets showed little reaction to the data with the rupee at 39.55/56 per dollar, a touch lower than 39.54/55 ahead of the release of the data, and the 10-year federal bond unchanged at 7.46 per cent.
The central bank raised interest rates five times in 10 months from June 2006 to tackle inflation and credit growth in Asia's third-largest economy and kept them steady last month saying inflation risks persisted.
Central bank officials said on Thursday inflation had been contained but Reserve Bank of India Governor Yaga Venugopal Reddy said the "inherent logic" of January's rate decision still held ground.
Shortage: Wheat imports
India is likely to import wheat for the third straight year in 2008, despite government estimates of a good crop, and volumes could be slightly higher than last year, a senior US industry official said yesterday.
"In my opinion, they would need to import a little - about two to three million tonnes," Mark Samson, vice-president for South Asia of the US Wheat Associates told Reuters on the sidelines of a conference in Bangalore.
In 2006, India imported wheat for the first time in six years, buying about 5.5 million tonnes. It also imported 1.8 million tonnes last year to control prices and build up stocks.
The Indian government has estimated that wheat output this year would be about 75 million tonnes, while the buffer stocks in April would be 5.3 million tonnes, against a targeted four million tonnes.
"I think that the estimate of 75 million tones is at the very upper end. I think the potential is down, not up, for increased production," Samson said.
Indian traders and government officials attending the conference have dismissed the possibility of plentiful imports this year, saying the new crop and the buffer stocks would be adequate for meeting local demand.
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