India Tries To Allay Fears As Inflation Hits 6.73%

Feb. 15, 2007
Government cuts diesel and gasoline prices.

India's inflation jumped to a two-year high of 6.73%, prompting the government to slash diesel and petrol prices and raise expectations of more rate hikes to stabilize prices. Rising prices sent ripples of fear through India's federal administration and prompted Prime Minister Manmohan Singh to issue a statement on Feb. 15 to try and calm jitters from the domestic market. "As far as inflation is concerned, we are adopting a multi-pronged strategy that will yield results soon," Singh said.

Following the inflation data, India cut the price of petrol by two rupees (4.4 US cents), or 4.5%, and diesel prices by one rupee, or 3.2%.

State-owned oil firms use diesel and petrol revenues to subsidize the sale of kerosene, used as a cooking fuel by the poor.

Commerce Minister Kamal Nath said New Delhi would further liberalize imports if needed to control inflation. "The prices are rising because supplies have not kept pace with demand in a fast-growing economy and we are trying to see where these supply gaps are coming from," he said. "If need arises imports will be made more flexible," Nath added. India has already cut import duties on cooking oil, cement and other products and banned wheat exports in a bid to lower prices.

On Feb. 13, India's central bank tightened monetary policy for a second time in two weeks to fight accelerating inflation, hiking the amount of cash commercial banks must keep on deposit to 6% from 5.5%.

Copyright Agence France-Presse, 2007

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