Rate cut chorus grows louder as inflation drops to 5-year low

Wholesale price index-based inflation dropped for the fifth straight month to 1.77 per cent in October.

RBI, RBI SFB, RBI PB, Reserve Bank of India, Small Finance Banks, Payments Banks

The wholesale price index-based inflation dropped for the fifth straight month to 1.77 per cent in October, the lowest in more than five-years on the back of softening food and fuel prices.

This will intensify pressure on the Reserve Bank of India (RBI) to cut interest rates to boost investment, more so as it follows the retail inflation that cooled to an all-time low of 5.52 per cent during the month. The factory output had also posted a moderate growth of 2.5 per cent in September after recording almost-flat growth in the previous two months.

The wholesale price index (WPI), released by the commerce and industry department, was seen slowest in September 2009.

It was 2.38 per cent in September 2014 while the WPI during April-October stood at 2 per cent. The inflation for August was revised upwards to 3.85 per cent from 3.74 per cent earlier.

Enthused by the decline in twin inflation, corporates have escalated their demands for slashing key interest rates in the upcoming policy review by RBI on December 2. The central bank has kept the rates unchanged since January this year despite the pressure. It has been targeting the retail inflation, which has moderated significantly. However, economists believe that the RBI will hold the rates.

“This turned out to be a broad-based softening… Softer food prices and a favourable base would further push down the November figure. Deflation is also possible, albeit with low probability. We reckon that the RBI, at its December policy meet, will wait-and-watch, and cut rates at the next policy meeting,” a report by Anand Rathi Institutional Research said.

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Fall in oil prices, to help ease inflation further: Jaitley

As wholesale inflation fell to a five-year low, finance minister Arun Jaitley said that decline in global crude prices should further help in improving the price situation. “We believe that softening of prices is in our interest. With crude prices down, this trend of lower food prices will continue,” he said. The minister, however, cautioned that it has to be seen how the oil prices augur going forward.  (PTI)

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