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  Inflation Falls to Record Low

India’s inflation for the week recorded the lowest in two decades.

The inflation figure for the week ended March 7 came in at 0.44% week-on-week (WoW) compared to 2.43% last week. It was expected around 0.86-0.89%. The annual inflation rate was 7.78 percent during the corresponding week of the previous year.

The Wholesale Price Index (WPI) for all commodities is down by 0.4% at 226.7 WoW. Wholesale prices fell as the index of primary articles that includes food items and the index of fuel, power and light declined. The benchmark ten-year government bond extended gains after the inflation report, driving the yield down to 6.41 percent from 6.45 percent. The rupee traded at 50.80 per dollar, compared with 51.29 yesterday. The markets reacted in the negative initially but later stabilized when it realized that the decline was due to higher base effect and that the fear of deflation setting in was unfound.

Economists expect the inflation to turn negative for the next few months on account of higher base effect along with low demand in the economy.

The low inflation rate will provide room for the government to cut interest rates to protect the economy from the global recession. The International Monetary Fund (IMF) said this week India should rely more on monetary policy to support the economy as high public debt makes fiscal efforts difficult.