Indian inflation eased to a 41-month low in April, giving the central bank room to extend monetary easing and support growth in Asia's third-biggest economy.
The wholesale-price index rose 4.89 per cent from a year earlier, after climbing 5.96 per cent in March, the commerce ministry said. Last month's pace is the slowest since November 2009, according to previously reported data. The median estimate of 29 economists in a Bloomberg News survey was 5.45 per cent.
Reserve Bank of India governor Duvvuri Subbarao on May 3 cut interest rates for a third time this year and signaled there is little space to ease further, citing a current-account shortfall and the possibility of price pressures returning. The economy grew 5 per cent in the year ended March, the least since 2003, according to an initial estimate from the government.
"Easing price pressures and weak growth will allow the RBI to continue with its calibrated easing," said Tirthankar Patnaik, a Mumbai-based strategist at Religare Capital Markets. The central bank may cut rates by another 75 basis points in the current fiscal year to March, he said.
India's central bank this month lowered the repurchase rate to 7.25 per cent from 7.5 per cent, a third straight quarter-point cut. The monetary authority described the current-account shortfall as "by far the biggest risk to the economy" after the gap swelled to US$32.6 billion in the quarter ended December 31, a record 6.7 per cent of gross domestic product.
Prime Minister Manmohan Singh's minority government has changed policies since September last year to spur growth and avert a credit-rating downgrade. The steps included trimming the budget deficit, opening the retail and aviation industries to more investment from abroad and reducing a levy on foreign investors in local bonds.
The central bank on Monday said it would immediately restrict gold imports on a consignment basis by banks to only those required to meet "genuine" needs of jewelry exporters. The move, first announced on May 3, is part of its plan to contain the record current-account shortfall.
* Bloomberg News