Bloomberg

New Delhi

India’s consumer-price inflation exceeded 11% last month, adding pressure on central bank Governor Raghuram Rajan to raise interest rates again next week even as industrial output slid more than expected.

Consumer prices rose a more-than-estimated 11.24% in November from a year earlier, official data yesterday showed. That prompted brokerages from Nomura Holdings Inc to DBS Group Holdings to revise their interest rate forecasts, with most economists in a Bloomberg survey now expecting Rajan to increase the benchmark repurchase rate to 8% from 7.75% in a decision due on
December 18.

“We are very uncomfortable with the current level of inflation,” Rajan, who has increased the policy rate by 50 basis points since he took over the Reserve Bank of India in September, told reporters on Friday. “Clearly growth is weaker than we would like, inflation is higher than we would like. It would be wonderful if we had the normal situation of extremely high growth and high inflation and extremely low growth and low inflation, in which case policy is very easy.”

The central bank’s push to stem price increases has damped spending in the world’s second-most populous nation, with another report on Friday showing industrial production slid 1.8% in October, the first contraction in four months. Prime Minister Manmohan Singh also faces pressure to curb government expenditure on subsidy programmes ranging from fuel to food to avert a credit-rating downgrade to so-called junk status.

“The central bank has been left with no choice but to tighten interest rates,” said Rupa Rege Nitsure, an economist at Bank of Baroda in Mumbai. “Production has slowed so much, yet prices are not coming down.”

The inflation reading exceeded the median estimate of 10% in a Bloomberg News survey, while the contraction in factory output topped the median forecast of a 1.2% decline. Nine of 17 economists in a Bloomberg survey expect the central bank to raise the repurchase rate next week to 8%, while the rest see it left unchanged.

Friday’s data “paint a stagflationary picture of the economy where despite weaker growth, inflation remains elevated due to supply-shocks,” Sonal Varma, an economist at Nomura Holdings Inc in Mumbai, wrote in a research note yesterday, adding that she now expects the RBI to raise the repurchase rate by 25 basis points at the December 18 policy meeting.

The consumer-price gauge was created in January 2011 and the government began publishing a year-on-year rate from 2012. The index is now climbing at the fastest pace in the Group of 20 major economies, according to data compiled by Bloomberg.

Wholesale prices rose 7% in November from a year earlier, the same pace as October and the highest since February, according to the median estimate in a Bloomberg News survey before a report due tomorrow.

“We are aware of the weak economy, but we also have to take into account inflationary pressures,” Rajan said.

The rupee, which has slid 12% against the dollar in the past 12 months, weakened 0.5% to 62.135 at 12:17pm in Mumbai on Thursday.