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India CPI eases more than estimated before Rajan's rate review

[NEW DELHI] India's inflation eased more than estimated, adding pressure on central bank Governor Raghuram Rajan to lower interest rates after the government stuck with a plan to narrow the budget deficit.

Consumer prices rose 5.18 per cent in February from a year earlier after a 5.69 per cent increase in January, the Statistics Ministry said in a statement on Monday. The median of 36 estimates in a Bloomberg survey of economists had predicted a 5.52 per cent gain. Wholesale prices fell 0.91 per cent compared with a 0.19 per cent projected decline.

Rajan on Saturday said the central bank was "comforted" by Prime Minister Narendra Modi's plan to shrink the budget deficit to 3.5 per cent of GDP while telling reporters to "wait and see" how that feeds into monetary policy. He's scheduled to review policy on April 5 as he looks to keep CPI within 5 per cent by March 2017.

Meeting India's longer term inflation targets may be challenging as back-to-back years of drought erode harvests and pressure Modi to compensate farmers. He vowed on Saturday to refrain from competitive currency devaluation and cash handouts in a world of negative interest rates. While gross domestic product data show that India's economy is among the world's fastest growing, underlying indicators such as factory output and exports signal weakness.


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