Inflation dips further to 3.36 per cent

NEW DELHI: Continuing its southward journey, inflation fell further to 3.36 per cent for the week ended February 14, from 3.92 per cent in the previous week.

It was slightly above a median forecast in a Reuters poll of analysts of 3.31 percent. The annual inflation rate was 5.66 percent during the corresponding week of the previous year.

The Reserve Bank of India expected annual inflation to be below 3 per cent by March 31, the end of the 2008/09 fiscal year, with some analysts predicting it will be even lower.

The inflation rate fell from above 5 per cent in the last week of January after India cut its state-set retail fuel prices by up to 11 per cent.

Economists expect the central bank to cut interest rates again in the near term, prompted by falling inflation and slowing economic growth in Asia's third-largest economy.



Sonal Varma, economist at Nomura Research, expects the Reserve Bank of India to cut both its key lending and borrowing rates by 50 basis points by end-March and by a further 100 basis points by mid-2009.

The central bank has cut its main lending rate by 350 basis points since mid-October, with its last cut in January, and has taken a raft of liquidity boosting steps to boost slowing growth.

After peaking at just below 13 per cent in early August, inflation has fallen sharply as the global crisis punctured a boom in commodity prices.

Madan Sabnavis, economist at the National Commodity and Derivatives Exchange, forecasts inflation to drop to 2 per cent by end March.