With wholesale inflation slipping to (-)2.4 per cent in June, India Inc today demanded a deeper cut in key policy rates by RBI to stimulate demand and boost investments, at a time when industrial growth has slowed down.
“Industry would like to see a deeper cut in the policy rate and its equivalent transmission by banks in the form of lower lending rates,” Ficci President Jyotsna Suri said.
CII Director General Chandrajit Banerjee said, “The near static price line and benign inflation outlook should propel the RBI to continue with its rate easing cycle in its forthcoming monetary policy to support investment and consumption demand especially as industrial production has recorded a muted performance.”
Deflationary trends continued for the eighth month in a row in June with the wholesale price-inflation slipping to (-)2.4 per cent, largely due to cheaper vegetable and fuel prices.
The data came a day after the retail inflation for the same month rose to an 8-month high of 5.4 per cent.
“Subdued growth as indicated by the recent Index of Industrial Production (IIP) numbers for the month of May 2015 certainly warrants cutting the interest rates to boost domestic supply response,” said Assocham Secretary General DS Rawat.
Industrial production in May slowed to 2.7 per cent from 5.6 per cent a year ago, dragged down by manufacturing, strengthening the case for an RBI rate cut.
Assocham also pointed out that a long term sequential drop of inflation of manufacturing products does not augur well for the manufacturers as it could adversely impact their pricing power.
Industry bodies predicted that wholesale price-inflation is expected to remain range-bound in the near future.
“We expect, going forward, the softening of oil prices and the moderation in food inflation due to better than expected monsoon would dampen price pressures and prevent inflation from making a comeback anytime soon,” Banerjee said.
RBI mostly tracks the consumer price inflation for its monetary policy decision, and its next review is due on August 4. The central bank has said it would watch out for the data, including inflation and the progress of monsoon before any change in its policy rates.
Last month, RBI had cut the repo rate (short-term lending rate) from 7.5 per cent to 7.25, but left all other policy tools like cash reserve requirement and statutory liquidity ratio unchanged.