Inflation accelerated to a fresh 13-year high of 11.63%, pushed up by rising prices of fruit & vegetables and fuel despite government attempts to keep the price line at a comfortable level.
The cost of borrowing for 10 years climbed to the highest level since 2001 as t he yield on the benchmark 2018 bonds, reflecting the inflation trend and expectations, soared to a seven-year high of 9.18%, intra-day. It ended at 9.16%, higher than Thursday?s close of 8.81%. Traders believe the outlook is bearish. Yields rose as bond prices fell on speculation that record crude oil prices and a weakening rupee will add to inflation and erode the value of the debt?s fixed payments. While the rupee gained 0.3% on Friday to close at 43.15 against the dollar, the Indian currency has shed 0.6% this week on concern rising oil prices will increase demand for dollars from importers.
The general price level rose 11.63% for the week ended June 21, against 11.42% in the previous week, and analysts said this could prompt the Reserve Bank of India (RBI) to further tighten its monetary policy at its review meeting on July 29.
RBI governor Yaga Venugopal Reddy, in a speech in Manchester on July 1, said the most important priority for the world?s central bankers was to ?calm nerves? on inflation and inflationary expectations. RBI has hiked the rate at which it lends to banks, or repo rate, twice in June to a six-year high of 8.5%, and raised the slice of deposits banks need to keep with it, or the cash reserve ratio, to 8.75% to reduce the money supply and effect a fall in inflation figures.
The finance ministry, on its part, said the main drivers of inflation continue to be petroleum products, and iron and steel products, including iron ore.
The rise in prices during the week was led by unrefined oil that soared by 8%, tea by 4%, and fruit & vegetable, sea fish, maize and bajra by 2%. Pulses, including urad and moong, and spices became expensive by 1% each, government data showed on Friday.
Despite attempts made by the government to tame the price rise, items like iron and steel, edible oils and cement became costlier during the week.
Reddy said higher and volatile prices of food, energy and other commodities are causing a significant upside bias to inflation.
