With inflation dipping to a new low, India Incorporated has renewed its demand for a interest rate cut. The rate cut, it says, will provide space for Reserve Bank of India (RBI) to cut policy rates to fuel investments and propel growth.
Deflationary pressure continued for the consecutive sixth month with inflation dropping to a new low of (-) 2.65 per cent in April, on account of decline in fuel prices and manufactured items even as food prices increased.
RBI Governor Raghuram Rajan, who surprised all with two rate cuts of 0.25 percent each outside the scheduled review meetings earlier this year, was committed to the accommodative stance. He added policy moves will be shaped by incoming data and transmission of rate cuts by banks will be his top-most priority.
The RBI has kept policy rate unchanged in its review on April 7. Inflation, as measured on the Wholesale Price Index (WPI), has been in the negative zone since November. In April 2014, it was 5.55 per cent.
“The inflation outlook fuelled by commodity prices and the government’s anti-inflationary policies must provide adequate elbow room to the RBI,” CII director general Chandrajit Banerjee said.
“We look forward to another round of downward revision in the repo rate and subsequent transmission of same by the banks to encourage on-ground investments and build on the growth momentum,” Ficci president Jyotsna Suri said.
“While a decline in inflation could create room for a more accommodative stance from the RBI in of rate cut in its next bi-monthly monetary policy, we will reiterate that a long term sequential drop of inflation of manufacturing products could adversely impact their pricing power,” Assocham president Rana Kapoor said.