With Wholesale price index falling the most in five-and-a-half years in January India Inc on Monday urged the RBI to take full advantage of the situation by slashing interest rates in a bid to boost demand and revive industrial growth. Wholesale inflation turned negative for the second time in three months as fall in petroleum and food prices dragged it to a five-and-a-half year low of (-) 0.39 per cent in January.
“Given the continuing trend of moderate inflation both at the wholesale and retail level and the fact that a durable recovery in the industrial sector is still out of sight, we hope that the central bank would continue with the policy rate cut cycle after the forthcoming budget”,” Ficci President Jyotsna Suri said. Inflation measured on wholesale price index (WPI) was at 0.11 per cent in December. The data for November was revised downwards to a negative (-) 0.17 per cent, from the provisional estimate of zero.
The last time the inflation had touched this low level was in June 2009 when it was at (-)0.4 per cent. “Full advantage of the low pricing situation can be taken only if interest rates are reduced by at least 100 basis points and industrial growth revived so that the investment cycle can be revived,” Assocham President Rana Kapoor said.
PHD Chamber President Alok B Shriram said inflation in the negative trajectory will be demand inducing and a major relief for the manufacturers adding that at this juncture, a significant rate cut by the RBI becomes inevitable to boost up the demand scenario vis-à-vis easy availability of credit to the various consumers and producers’ segments.”
Although the prices of certain protein rich items and wheat declined during the month, the overall food inflation was at a six month high of 8 per cent, as per the Government data released. Inflation in ‘fuel and power segment’ was negative at (-) 10.69 per cent in January, while in manufactured products it was at 1.05 per cent.
RBI Governor Raghuram Rajan had on January 15 cut interest rates ahead of the scheduled monetary policy review and it is expected that he might announce another cut after the Budget in wake of significant improvement in the inflation situation. The next review is due on April 7. Data showed that inflation in pulses, vegetables and cereals was higher in January over the previous month.
On the other hand, the rate of price rise in potato, milk, rice and protein rich items like egg, meat and fish was slower in the month under review. The inflation in the primary articles segment inched up to 3.27 per cent in January, as against 2.17 per cent in December. Commenting on the numbers, PHD Chamber said a significant rate cut by the RBI becomes inevitable to boost the demand scenario vis-a-vis easy availability of credit to the various consumers and producers’ segments.
“We expect at least 1 per cent cut in the repo rate before entering the new financial year 2015-16, it said. Rajan, in the monetary policy review earlier this month, kept key interest rate unchanged saying the apex bank wanted more comfort on inflation front as it awaited cues from Finance Minister Arun Jaitley’s first full year Budget.