India's government will release up to 400,000 tonnes of its wheat stocks into domestic markets by end-March to cool a rise prices caused by concerns that unusually warm weather may reduce this year's crop.
Friday's step is the latest by the government to limit rises in food prices, which contributed to annual inflation moving back above 6 percent in mid-January and heightened the prospect of a follow-up to this week's interest rate rise by the central bank.
Earlier, a senior official at the food ministry told Reuters that the wheat harvest would meet the government forecast of 74 million tonnes despite a sudden rise in temperatures in key growing regions at the end of January.
State-owned Food Corp of India would sell the released wheat stocks in February and March, targeting areas with high retail prices of wheat and flour, the government said in a statement.
A trader said the key would be the price it was sold at. "If the Food Corp sells 400,000 tonnes of wheat below the prevailing rates, prices may soften," an analyst with a Mumbai-based brokerage said, adding the government could release more wheat into the open market. The February wheat contract on the National Commodity and Derivatives Exchange gained 16.80 rupees to close at 1,044 rupees per 100 kg on Friday.
Last year, a poor crop forced India to order wheat imports for the first time in six years, and last week's above-normal temperatures stoked fears output might fall short again. But a senior food ministry official told Reuters the crop was on target to meet the government's forecast. "We took stock of the situation late last evening and found the rise in mercury was for a very short span of time," the official said.
"Weather so far has been good for ... 74 million tonnes." Wheat output in India, the world's second-largest producer, was 69.4 million tonnes in 2006, with warm weather in February a factor in the crop missing estimates of 73-74 million tonnes.
"There is no reason to worry about output this time as an additional 1.5 million hectares have been brought under wheat sowing," the official said.
The expansion was concentrated in the states of Maharashtra, Gujarat, Madhya Pradesh and Bihar. India grows one wheat crop a year to feed its 1.1 billion people. The official said the remainder of the wheat imports that were ordered in 2006 would have arrived before the new harvest begins next month.