Inflation slows to 3.45%, rates may stay steady

Written by Economy Bureau | New Delhi, Dec 28 | Updated: Dec 29 2007, 04:37am hrs
Inflation rate fell to 3.45% for the week ended December 15, against 3.65% in the previous week, reinforcing expectations that interest rates are likely to remain steady at the Reserve Bank of Indias policy review meeting next month.

The RBI will hold its monetary policy review on Jan. 29 and is widely expected to keep its key-lending rate at 7.75% as inflation remains below its comfort ceiling of 5% for this fiscal. The central bank wants to condition inflationary expectations in the range of 4.0-4.5% and wants to keep it around 3.0% in the medium term.

Analysts said higher fuel prices were likely to increase the annual rate up to 4% in coming months. The government has not raised retail fuel prices since February. However, with international oil prices hovering around $100 a barrel, the government may be forced to raise prices of petrol and diesel to reduce losses of state-run oil companies.

Inflation would rise a bit due to higher coal prices and a likely increase in petrol and diesel prices, said A. Prasanna, economist at ICICI Securities. Overall, we expect inflation to be within the 4.00-4.25% band for the rest of the (fiscal) year. HDFC Banks chief economist Abheek Barua added, Consumers are unlikely to get any relief in near future as there is little chance of interest rates coming down due to high inflationary expectations.