India, China Face Faster Inflation, Higher Rates
India's inflation accelerated to a 13-year high and economists forecast higher consumer prices in China after record crude oil forced both nations to increase the regulated cost of fuel.
India's wholesale prices jumped 11.05 percent in the week to June 7, the government said today, more than the median 9.79 percent increase in a Bloomberg News survey of 18 economists. China's fuel price increase today may lift consumer prices by as much as 1 percentage point this year, a separate survey showed.
A near doubling of crude oil prices has pushed up subsidy costs and threatened to erode profits of refiners such as Indian Oil Corp., prompting governments from Indonesia to Sri Lanka to raise fuel prices. That's adding pressure on central banks to increase interest rates and cool inflation, risking growth.
“If China and India are going to continue to roll back subsidies, then clearly we have not seen a peak in inflation,'' said Joseph Tan, a strategist at Fortis Bank SA in Singapore. “They need to tighten monetary policy, which means that growth is going to slow.''
China told lenders to set aside more money for a fifth time this year on June 7 to cool inflation that is close to a 12-year high. Banks must put aside a record 17.5 percent of deposits as reserves from June 25.
“Surely higher energy prices will send some pressure to the consumer price index, so we may have stronger policies against inflation,'' Zhou Xiaochuan, governor of the People's Bank of China, told reporters in New York today.
Repurchase Rate
In India, the central bank unexpectedly raised interest rates for the first time in 15 months last week, increasing the repurchase rate to a six-year high of 8 percent from 7.75 percent. The move came seven weeks before the bank's scheduled monetary policy meeting on July 29, and after it twice increased its cash reserve ratio in April to prevent money in the banking system from stoking prices.
China's CSI 300 stock index jumped 2.8 percent to 2,849.67 at the 3 p.m. close today as refiners China Petroleum & Chemical Corp. and PetroChina Ltd. gained. Bonds and stocks fell in India on concern faster inflation will prompt the Reserve Bank of India to raise borrowing costs. The Bombay Stock Exchange's Sensitive Index fell 3.2 percent to 14,602. The yield on the benchmark 10-year bond rose 17 basis points to 8.64 percent as of 2:31 p.m. in Mumbai.
India, which relies on crude oil from overseas to meet three-quarters of its energy needs, raised retail prices of gasoline and diesel for the second time in four months on June 4, joining Indonesia, Malaysia and Sri Lanka http://pay-day-home.com. China increased gasoline, diesel and jet-fuel prices today.
Record Oil
Reserve Bank Governor Yaga Venugopal Reddy has said the country's high level of inflation “is totally unacceptable.'' Taming inflation that reached a 12-year high in February is the key goal for China, central bank Governor Zhou Xiaochuan said June 18.
Crude oil prices touched an all-time high of $139.89 a barrel on June 16.
Rising prices have eroded the popularity of Indian Prime Minister Manmohan Singh's Congress party, which has lost ground in nine of 11 state elections since January 2007. Singh faces elections in six more states this year and national elections by May 2009.
“Inflation near double digits is the last thing any government would like to see in the run-up to the elections,'' said Robert Prior-Wandesforde, senior economist at HSBC Holdings Plc in Singapore. “The Reserve Bank may raise the repurchase rate again in its July meeting to anchor inflationary expectations.''
The cost of default protection on India's ICICI Bank Ltd. and State Bank of India increased after the inflation report, suggesting deteriorating investor perceptions of credit quality.
Refinery Closures
“The increase was not a one-and-done move and the Reserve Bank will follow up with more tightening,'' said Gunjan Gulati, an economist at JPMorgan Chase & Co. in Mumbai. “We expect the bank to hike the repurchase rate and reverse repurchase rate by 25 basis points each in July and October.''
Indian Oil, the nation's biggest refiner, posted its first quarterly loss in more than two years as the government capped fuel prices. The loss in the three months ended March 31 was 4.14 billion rupees compared with a profit of 16.1 billion rupees a year earlier. Profit at Bharat Petroleum Corp., India's second-largest refiner, fell 91 percent.
In China, soaring international oil prices had led to refinery closures, queues at petrol stations and rationing in some regions, the National Development and Reform Commission said yesterday.
“These are difficult times,'' Finance Minister Palaniappan Chidambaram told reporters in New Delhi today. “Naturally, we will have to look at stronger measures on the demand side and on the monetary side.''
Filed under: business by Wolf