India Inflation quickens to 9.44pct, adding to rate pressure

India’s inflation accelerated to 9.44 percent in June, adding pressure on the central bank to extend its longest stretch of interest-rate increases in a decade. Bonds pared gains.

The benchmark wholesale-price index rose from 9.06 per cent in May, the commerce ministry said in a statement in New Delhi today. The median estimate of 28 economists in a Bloomberg News survey was for a 9.68 per cent increase.

The Reserve Bank of India may raise rates this month even after Mumbai was hit yesterday by the biggest terrorist attack since November 2008, economists said. India has persisted with monetary tightening, while neighbors from Malaysia to Indonesia refrained from raising rates in July on concern that Europe’s debt crisis and slowing US growth will hurt Asian economies.

“The central bank’s stance will be governed by inflation,” Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd, said before the report. “These attacks are unlikely to have any material impact on the economy.”

She predicted the central bank will increase its repurchase rate by a quarter of a percentage point to 7.75 per cent in the next policy announcement on July 26. The Reserve Bank has raised borrowing costs 10 times since the start of 2010.

The yield on the 7.80 per cent note due in April 2021 was at 8.27 per cent as of 12:14pm, compared with 8.26 per cent before the report was published. The Bombay Stock Exchange’s Sensitive Index fell 0.1 percent and the rupee was little changed at 44.54 against the dollar.

Three bomb blasts in Mumbai yesterday killed at least 17 people and injured 131 others, according to a statement from the home ministry. Yesterday’s attack is the first in the nation’s financial capital since Pakistani gunmen killed about 160 people in 2008.

Inflation in India may have accelerated in June, Finance Minister Pranab Mukherjee signaled after the government raised diesel costs last month for the first time in a year.

Prime Minister Manmohan Singh’s government on June 24 allowed state-run refiners including Indian Oil Corp to increase diesel prices by 3 rupees (7 cents) a liter, kerosene by 2 rupees a liter and cooking gas by 50 rupees for every 14.2 kilogramme bottle. The decision was aimed at reducing subsidies and helping limit losses at companies selling fuels below cost.

“The fuel price hike is yet to seep into the economy,” said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd in Mumbai. “Inflation will remain in double digits until November as its impact plays out.”

He expects the Reserve Bank to increase borrowing costs by a quarter point this month.

By contrast, Federal Reserve Chairman Ben S Bernanke yesterday signaled the central bank has more tools for monetary easing should the US economy weaken.

Economic growth in the US slowed to a 1.9 per cent annual pace in the first quarter from 3.1 per cent in the previous three months.

In Europe, Ireland joined Portugal and Greece as the third euro-area nation to have its credit rating reduced to below investment grade as Moody’s Investors Service cut its rating to Ba1 this week, while European Union finance ministers struggle to contain the region’s sovereign debt crisis.

Curbing inflation is the top agenda for India’s policy makers as price gains erode spending power in a nation where the World Bank estimates more than three-quarters of the people live on less than $2 a day.

Reserve Bank Governor Duvvuri Subbarao said last month that “domestic inflation risks remain high,” and that “some short- run deceleration in growth may be unavoidable in bringing inflation under control.” India’s economy may grow “around eight per cent” in the year through March from 8.5 percent in the previous 12 months, he estimated.

India’s industrial production rose 5.6 per cent in May from a year earlier, the least since August 2010, the Central Statistical Office said this week.

“From the perspective of the central bank, their role is still to try to contain inflation from getting out of hand regardless of the episode,” David Cohen, a Singapore-based economist for Action Economics, who previously worked at the US Federal Reserve, said referring to yesterday’s attacks.