WPI drops to a historic low; Will RBI now cut rates?

RSTV Bureau

inflation_india

Wholesale Price Index (WPI) further plunged to a historic low of (-)4.95 per cent in August on the back of cheaper fuel and vegetables. This will further put pressure on the RBI to cut interest rates.

Deflationary trend continued for the 10th straight month in August. It has been in the negative zone since November 2014. In July, the WPI-based inflation was (-)4.05 per cent whereas a year ago, in August 2014, it was 3.85 per cent.

The drop in the WPI figures have led to the speculation that the RBI may cut the interest rates in its next monetary review policy.

“RBI will take a considered call on the issue. There is no divergence in perception. The government and RBI are working together. Taking into account the overall factors, RBI will take a considered call,” said Economic Affairs Secretary Shaktikanta Das.

“Under the present circumstances, it would be most appropriate for the RBI to give weight to growth considerations and announce a deeper cut in the policy rate,” said FICCI President Jyotsna Suri.

“We expect the RBI to reduce interest rates by 0.50 per cent in the forthcoming policy with statements supporting further easing in the near future,” said CII Director General Chandrajit Banerjee.

As per the data released on Monday morning, 0nions and pulses turned costlier this month with inflation reaching 65.29 per cent and 36.40 per cent respectively.

Overall, the food basket inflation remained in the negative territory for second month in a row at (-)1.13 per cent. For vegetables, it declined to (-)21.21 per cent as potato was at (-)51.71 per cent.

Inflation rate in the fuel and power segment was (-)16.50 per cent, while the rate of inflation in manufactured products was (-)1.92 per cent.

Besides pulses and onions, food items which became dearer in August are eggs, meat and fish (3.30 per cent), milk (2.08 per cent) and wheat (2.05 per cent).

The inflation data for June has been revised to (-)2.13 per cent, as compared to provisional estimates of (-)2.40 per cent.

The Reserve Bank mostly tracks the Consumer Price Index (CPI)- based inflation for its policy decision. Consumer inflation drops to 3.66 per cent in August as against 3.78 per cent in July.

RBI’s next policy review is due on September 29. On August 4, RBI kept key rates unchanged as it wanted more clarity on the inflation numbers over the next  few months.

(With inputs from PTI)