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India’s Inflation Moderates, Boosting Rate-Cut Case

“Indian inflation slowed to a three- year low in December, boosting scope for a reduction in interest rates to revive the economy.

The wholesale-price index rose 7.18 percent from a year earlier, after climbing 7.24 percent in November, the Commerce Ministry said in a statement in New Delhi today. That’s the slowest since December 2009. The median of 34 estimates in a Bloomberg News survey was for a 7.37 percent gain.

India’s central bank signaled Dec. 18 that monetary policy should shift toward aiding growth, predicting the fastest inflation in major emerging nations will cool in an economy expanding at the weakest pace in a decade. Finance Minister Palaniappan Chidambaram, due to unveil the budget next month, has called for cheaper credit to back efforts to spur investment.

“The Reserve Bank of India can support growth only at the margin,” Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai, said before the report. It will cut the repurchase rate at most by 25 basis points to 7.75 percent at the Jan. 29 review, since it faces “a serious dilemma” of trying to help the economy while containing prices, Rakshit said.

The yield on the 8.15 percent government bonds due June 2022 declined to 7.80 percent as of 4:44 p.m. in Mumbai, from 7.87 percent on Jan. 11. The BSE India Sensitive Index (SENSEX)advanced 1.2 percent, while the rupee strengthened 0.5 percent to 54.4906 per dollar.

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