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India hit with high inflation, slowing growth

12-15-2011 14:59 BJT

Inflationary pressure continues in India, with prices rising around 9 percent in November. Meanwhile, industrial output has also slumped, which poses a difficult task for the nation's central bank.

Analysts say it's in a bind ahead of its policy meeting on Friday, as it struggles to manage both stubbornly high inflation and deteriorating growth.

Some relief at last for shoppers at an Indian market - rampant inflation is starting to ease.

Wholesale prices rose 9.1 percent in November - higher than forecast but down from gains of close to 10 percent in October.

Food prices have fallen to their lowest level in nearly three and a half years.

It's vindication of sorts for India's central bankers. They've tackled inflation aggressively, hiking rates more than 10 times since early 2010.

In contrast, officials from Indonesia and Australia have eased policy -- with an eye to Europe's escalating debt crisis..

But India is far from immune to problems in the West.

Industrial output has slumped to its lowest in over two years, sending the rupee to a record low against the dollar.

Inflationary pressure continues in India, with prices rising around 9 percent in November.

The government has cut its growth forecast and demand for bank loans has stagnated.

Nick Verdi, currency strategist at Barclays Capital, says India appears increasingly vulnerable.

Nick Verdi said, "It is very expensive for Indian companies to invest with interest rates at this level, and the central bank is unlikely to be able to cut interest rates that aggressively, So its monetary policy stance is the key factor hindering development going forward."

Such concerns put India's central bank strategy under fire.

But analysts say officials won't switch tack any time soon - keeping rates steady this Friday and until Q2 2012.

That won't be enough, says Sanjay Mathur of RBS.

Sanjay Mathur, chief economist of RBS, Asia Ex-Japan, said, "I think that the RBI has clearly indicated from all its talk that it is shifting to a neutral to a moderately easy stance, so I think that would be the first point of attack, ie, the RBI actually cuts the CRR by 50 basis points this time."

All of which is of little comfort for India's 1.2 billion people. As across much of Asia consumers are caught between economic turmoil abroad and still fast-rising prices at home.

 

Editor:Liu Fang |Source: CNTV.CN

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