Markets react to PM speech

An analyst has said it would be difficult to achieve 5 pct inflation that PM has indicated in his speech.

Indian government attaches the highest priority on containing inflation,according to Prime Minister Manmohan Singh8217;s draft speech on Monday.

Singh was speaking at a rare news conference in New Delhi marking the first year since the Congress-led coalition government was reelected to a second term.

It is only one of a handful of full press conferences he has given since first coming to power in 2004. COMMENTARY:

RUPA REGE NITSURE,CHIEF ECONOMIST,BANK OF BARODA,MUMBAI:

Going by the current trends in non-food price inflation and uncertainty about fuel prices,it looks difficult for India to see inflation coming down to 5 percent by December.

MARKET REACTION:

The yield on the benchmark 10-year 7.80 percent 2020 bond was steady at 7.43 percent from before the prime minister8217;s comment on inflation,growth. The 2020 bond had ended at 7.38 percent on Friday. The partially convertible rupee was steady at 46.65/66 per dollar from beforehand. It had ended at 46.95/96 on Friday.

The benchmark five-year overnight indexed swap was at 6.40/44 percent. It had ended at 6.36/38 percent on Friday.

The benchmark BSE share index was at 16,655.69 points,up/down 1.2 percent from Friday.

BACKGROUND:

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8211; India8217;s food price index rose 16.49 percent in the year to May 8,while the fuel price index rose 12.33 percent. Food prices inched up compared with the previous week8217;s annual rise of 16.44 percent,while fuel prices held steady.

8211; Wholesale prices,the most closely watched inflation gauge in India,eased in line with expectations to 9.59 percent in April from a year earlier.

8211; Industrial output in March grew in double digits for the sixth straight month,rising an annual 13.5 percent,providing further evidence of a strong rebound in the economy.

8211; A robust economic growth has raised the prospects of capacity constraints,which are seen aggravating price pressures.

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8211; The central bank has described the inflationary situation as worrisome with asset prices and demand pressures picking up.

8211; The Reserve Bank of India RBI has raised key rates by a total of 50 basis points since mid-March,and analysts expect a 25 basis points rise on July 27 when it reviews policy.

8211; Subir Gokarn,a deputy governor at the RBI,has said manufacturing inflation would determine the central bank8217;s future policy moves.

8211; The RBI expects inflation to ease around mid-2010 on a normal monsoon and moderation in food prices and has forecast the March 2011 WPI inflation at 5.5 percent.

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8211; The economy is expected to expand 8.5 percent in the current fiscal year that started on April 1,after an estimated growth of 7.2 percent in the previous year.