India's inflation rate hits seven-month high

Indian food market India's central bank has previously cited high inflation as the reason for not easing its policies

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India's inflation rate rose to a seven-month high in September, limiting the room for authorities to ease monetary policy as they look to spur growth.

The Wholesale Price Index, India's main gauge of inflation, rose 6.46% from a year earlier, up from 6.1% in August.

Rising consumer prices have been a concern for policymakers, preventing them from taking aggressive measures to boost India's slowing economy.

Analysts say the central bank could raise interest rates as a result.

"This will not give much comfort for Reserve Bank of India (RBI)... and sets [the economy] up for a rate hike in the upcoming policy review at the end of the month," said Badrish Kulhalli, a fixed-income fund manager at HDFC Standard Life Insurance.

India's central bank raised its key interest rates last month to 7.5% from 7.25%, in an attempt by the bank to keep price rises in check.

'Complete letdown'

Start Quote

Markets are disappointed as traders have been expecting the Reserve Bank of India to go on a rate reduction programme, and that is where low inflation would have helped”

End Quote Deven Choksey KR Choksey Securities Ltd

The data comes after India, Asia's third-largest economy, has seen its growth rate decline.

Its economy grew at an annual rate of 5% in the 2012-13 financial year, the slowest pace in 10 years.

There are concerns that its growth rate may dip further, amid a slowdown in the manufacturing sector and declining foreign investment in the country,

That has triggered calls for the central bank to ease some of its policies, in an effort to spur a fresh wave of economic growth.

However, rising consumer prices and the rupee's recent weakness have caused the central bank to tighten its policies instead.

Analysts said the continued rise in the consumer prices might prompt the RBI to stick to its current policy.

"Inflation numbers are a complete letdown," said Deven Choksey, managing director of KR Choksey Securities Ltd.

"Markets are disappointed as traders have been expecting the Reserve Bank of India to go on a rate reduction programme, and that is where low inflation would have helped."

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