Falling inflation makes a good case for further rate cut: FICCI

The retail inflation, which fell 3.78 per cent in July compared to 5.40 per cent in June, is also now tuning in to the WPI movements.

Ahead of India’s 69th Independence Day and the looming pall of yet another wasted Parliament session, the government can take some solace from wholesale price inflation registering its steepest decline since 2005.

As such, the headline inflation has been heading south since June 2014 when it stood at 5.66 per cent, subsequently falling to 1.66 per cent in October, turning zero in November and then entering into the negative zone in January 2015 when it stood at -0.95 per cent. “At this point there is an imperative need to propel domestic demand on a sustainable basis that could lead to higher capacity utilization and eventually more investments”. “These numbers when looked at alongside figures of industrial performance make a good case for further cuts in the policy rate by RBI and we hope the central bank would continue moving in that direction”, FicciPresidentJyotsna Suri said.

RBI mostly tracks the consumer price inflation for its policy decision, and its next review is due on September 29. Prices of pulses rose 35.75% from a year earlier in July, as unseasonal rainfall earlier in February and March damaged crops, hurting supplies.

Inflation in the fuel and power group continued its sharp contraction, coming in at -12.8 per cent in July compared to -10 per cent in June.

The manufactured product index inflation was (-)1.47 per cent as against (-)0.77 per cent last month. The fall also exceeded the 2.6% decline predicted by economists polled by The Wall Street Journal. Easing price pressures and a slide in China’s yuan has increased speculation that Rajan would cut interest rates for a fourth time this year.

The RBI kept rates unchanged at 7.25% this month even though the government and industry have been urging for lower cost of borrowing. However, given the current trend of CPI, WPI and the index of industrial production, the central bank may soften its stance on the key interest rates.