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Wholesale price inflation surprises analysts, eases to 6.62%

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Analysts had expected wholesale prices, India's main inflation gauge, to rise an annual 7 per cent. (Reuters) Analysts had expected wholesale prices, India's main inflation gauge, to rise an annual 7 per cent. (Reuters)
SummaryAnalysts expected wholesale prices, India's main inflation gauge, to rise an annual 7%.

consistent worries over imported inflation and higher current account deficit. We expect the bonds to trade rangebound with a downward bias in yields until March primarily in anticipation of a rate cut and timely OMOs (open market operations)."

A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY SECURITIES DEALERSHIP, MUMBAI

"This shows that finally inflation is easing and fits with the growth slowdown. I think March inflation will be lower than RBI's projection and that should give RBI the comfort to cut rates by 25 basis points in March. Also, the revision trends are softening and so there could be a marginal upward revision if at all, to the January number. This number will strengthen the rate cut expectations going ahead."

MARKET REACTION

The 10-year government bond yield fell 3 basis points to 7.81 percent after the data.The one-year OIS swap rate was at 7.60 percent, according to traders, down 4 bps from its previous close and down about 2 bps from beforehand.

BACKGROUND

- Annual consumer price inflation accelerated to 10.79 percent in January from the previous month, government data showed on Tuesday, making retail inflation in India the highest among the BRICS group of emerging economies - Brazil, Russia, China, and South Africa.

- Trade deficit rose to $20 billion in January from $17.7 billion in the previous month as imports surged while exports rose only slightly, adding pressure to a widening current account deficit and limiting the scope for further interest rate cuts by the central bank.

- Current account deficit is likely to reach a record high in 2012/13, the central bank governor warned, a gap which the bank said previously needed to shrink for it to lower borrowing costs.

- Industrial production unexpectedly shrank for a second straight month in December, weighed down by weak investment and consumer demand, casting doubt on Finance Minister P. Chidambaram's view that Asia's-third largest economy is showing signs of recovery.

- Investment malaise is thwarting quick economic rebound and India is on course to end the 2012/13 fiscal year in March with its slowest growth in a decade at 5.0 percent.

- The central bank lowered its key policy rate for the first

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