Clamour for rate cut by the RBI rises after wholesale inflation falls

The Reserve Bank of India headquarters in Mumbai.

India Inc. on Friday called for an easing of the monetary policy by the Reserve Bank of India (RBI) in line with June’s deceleration in the country’s annual rate of inflation based on wholesale and retail prices.

Corporate India’s calls for a reduction of key lending rates comes after Friday’s data from the Ministry of Commerce and Industry showed that a massive contraction in food prices dragged down India’s annual rate of inflation based on wholesale prices to extremely low levels in June.

According to the data, the wholesale price index (WPI), with the revised base year of 2011-12, decelerated further in June to 0.90% from 2.17% in May as food prices eased.

CII director general Chandrajit Banerjee said the continuous easing of the WPI inflation print over the last few months reflects a paradigm shift towards an era of benign inflation.

“The declining inflation scenario, which has been undershooting the central bank’s inflation target by a large margin, should induce the RBI to resume its rate easing cycle,” said Banerjee.

“CII strongly recommends a rate cut of 50 basis points in the forthcoming monetary policy to provide a fillip to demand.”

On Wednesday, another set of official data showed that retail — or consumer price indexed (CPI) — inflation in India during June fell to 1.54% from a higher rate of 2.18% in May.

The retail inflation was dragged lower by a sharp fall in prices of food items like pulses, vegetables and other perishables. The current inflation rate is the lowest since the series began in 2012.

On a year-on-year (YoY) basis, the country’s June retail inflation was lower from 5.77% CPI rate reported for the corresponding month of last year.

“Both wholesale and retail prices data released this week report a broad based moderation in prices. Food inflation has softened considerably over the past couple of months and the outlook for prices is also benign,” said FICCI President Pankaj R. Patel.

“The continuous moderation in prices bodes well for the economy and Ficci feels that there is a clear case for the central bank to consider moving to an accommodative stance and introducing a rate cut by at least 50 basis points in the upcoming policy review or even earlier.”

On its part, Assocham advised “policymakers” to undertake measures to check cost of paddy, milk and sugar on the lines of abetment in prices of pulses and vegetables.

“Continuous rise in prices of petrol and high speed diesel due to recovery in crude oil prices globally need to be taken care of by policymakers since it may have impact on import bills and subsequent impact on exchange rates,” said Assocham’s President Sandeep Jajodia.

“WPI numbers will have consequent downward impact on CPI, which may allow RBI to induce the demand by reducing interest rates.”