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Inflation drops to 2.38% , five-year low

According to provisional estimates for the month of September 2014, WPI (Wholesale Price Index) based inflation has fallen to 2.38% which is a five year low.  This is mainly attributed to the decline in food and fuel prices.  Also, the decline was far greater than the 3.2% that was forecast by analysts.

Breakdown of Inflation for the month of September

inflation-in-indiaFood inflation has fallen to nearly two and a half year low of 3.52%. Inflation in vegetables has fallen to 14.98%. Inflation in milk, eggs, meat and fish and showed a market decline. The food basket has been on a declining trend since May itself. However, in September, the prices of fruits and potatoes rose. Inflation in manufactured products fell to 2.84%. Overall WPI inflation has been declining for the fourth straight month. Inflation in fuel and power declined to 1.33%

Comparison with inflation of previous months and years

The 2.38% inflation rate is the lowest since 1.78% in October 2009. Wholesale price inflation stood at 3.74% in August and 7.05% in September 2013. Inflation in manufactured products and fuel and power segment stood at 3.54% and 4.54% in August 2014.

Change in rate by RBI

The RBI has maintained its key interest rate at the earlier level due to inflationary pressures. It is unclear whether this record low WPI inflation level will elicit a change in interest rate. The RBI primarily factors in the CPI (Consumer Price Index) rates while determining policy rates and even that saw a marked decline to 6.46% in September. Experts say that RBI’s CPI based inflation target of 6% to be achieved by January 2016, looks like it is possible if the current trend of declining inflation continues.  RBI’s next bi-monthly monetary policy announcement is expected on the 2nd of December.

India’s Current Foreign Exchange Reserves: $311.427 billion

India’s forex reserves continued their downward journey for the fifth consecutive week, India’s foreign exchange reserves plunged by $2.754 billion to $311.427 billion in the week to October 3. The largest fall is seen in US currency assets which make a big component of the overall reserves. During the last quarter under review, this drop in forex was basically due to drop in valuation of Indian rupee on the back of a stronger US currency against other global currencies and talks of withdrawal of quantitative easing by the US. The Federal Reserve has now deferred its tightening programme to next year, helping rupee to regain some of its lost ground this week.

The foreign currency assets, incorporate the effect of both appreciation and depreciation of many non-US currencies also, which are held in reserves.
Even the gold reserves showed a negative trend after being stable for weeks. The reserves fell by $919.7 million. Other components include special drawing rights and India’s reserve position in the IMF which decreased by $22.8 million and $8.2 million to $4.284 billion and 1.540 billion, respectively.

Components of Foreign Reserves

The components of Foreign Reserves in decreasing order are Foreign Currency Assets, Gold, SDRs (Special Drawing Rights) and Reserve Position in IMF Trench.

World Bank Launches Global Infrastructure Facility (GIF)


The World Bank (WB) has launched the GIF to specifically cater to the infrastructure needs of the emerging economies and developing countries. The GIF will channel money towards bankable infrastructure project in such countries. GIF also places importance on sustainable development. Its key focus will be on climate friendly infrastructure investments and projects that will boost trade.

The GIF will collaborate with other international and multilateral agencies which provide loans and financial assistance to countries across the globe. It will also help these agencies with its expertise in financing, supervising and implementing projects. Another areas where GIF could provide assistance it ensuring that all regulatory, environmental and social safeguards are met with while investing in large scale infrastructure projects. GIF will also work with private entities like asset management companies, private equity firms, pensions and insurance funds and commercial banks to tap into multiple sources of funding.