Indian inflation slows with calls for interest rate cuts

As with European inflationary pressures falling, India has also experienced falling commodity prices which has finally ended a 13-year high stint of inflation having fallen more than economists’ predictions.

This will allow greater leeway for the central bank to cut interest rates and further protect the growing economy from a US, euro zone style slowdown.

India’s most watched inflationary measure are wholesale prices which fell to 9 percent at the beginning of this month, down from 10.7 percent in the third week of October.

Across Asia, the fall in oil and commodity prices has meant inflation has either remained stable or cooled, and so in China and India it has been a welcome change to stimulate the economy and governmental intervention in the form of stimulus packages.

The Bank of India Governor, Duvvuri Subbarao, is expected to take advantage of the current reprieve in inflation with the introduction of a further rate cut as industrial output is expected to fall as a result of reduced demand for Indian exports.

Currently industrial output has remained strong, unlike China and Germany, as India’s industrial output rose 4.9 percent in the six months to September compared to the same period in 2007.

Following the rate cut on 1st November, 1.4 trillion rupees have been freed up as lenders reserves are slashed but despite the increase in liquidity it is still expected that the slowdown in production and in exports will catch up and weaken India’s economic expansion.

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