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Inflation numbers ease, leave room for RBI rate cut

CPI at four-month low, WPI deflation continues for 16th month

BS Reporter  |  New Delhi 

Inflation numbers ease, leave room for RBI rate cut

The Consumer Price Index (CPI)-based inflation eased to a four-month low of 5.18 per cent in February from 5.69 per cent in January, which may prompt the Reserve Bank of India to cut its policy rate at its annual policy review next month to boost falling industrial production in volume terms. Inflation was 5.37 per cent in February 2015, according to official data released on Monday.

Economic Affairs Secretary Shaktikanta Das said CPI numbers were on expected lines and food inflation had reduced significantly. However, he was unable to say if it's a definite downward trend.

What may add to RBI's comfort is that the Wholesale Price Index (WPI) -based deflation continued for the 16th month in a row by standing at -0.91 per cent in February, slightly higher than -0.90 per cent in the previous month. RBI had targeted CPI inflation at six per cent by end January 2016, which was cut to 5.8 per cent. The January inflation was lower than this figure.

The central bank had also said it would aim to bring down retail price inflation further to five per cent by the end of the next financial year. Inflation is still on higher side when compared with the target, but there are 13 months left to achieve it.

Inflation numbers ease, leave room for RBI rate cut
ALSO READ: Wholesale prices drop for 16th straight month

Food inflation, the main component of CPI inflation, fell to 5.30 per cent in February against 6.85 per cent in January. The food index, that constitutes over 45 per cent of CPI, rose at 6.88 per cent in February 2015.

Food inflation also came down in the WPI to 3.35 per cent in February against 6.02 per cent in January.

The index of industrial production (IIP) contracted for the third month in a row in January by 1.5 per cent against 1.3 per cent in December.

Experts say RBI was looking at the Budget for fiscal consolidation before deciding its stance on monetary easing.

Finance Minister Arun Jaitley stayed on the road map by pegging fiscal deficit at 3.5 per cent of the country's gross domestic product (GDP) for 2016-17, against 3.9 per cent projected for the current financial year.

"One needs to wait for RBI to take a call on monetary easing," Das said.

Ashwani Kumar, chairman and managing director, Dena Bank and Indian Banks' Association (IBA), said the CPI numbers showed a substantial fall in inflation and strengthen the case for easing key policy rates. Economists, however, added that rate cuts after April would depend on the impact of the Seventh Pay Commission's award on inflation, monsoon and the global situation.

"Any further easing would be contingent on the effects of the implementation of the Pay Commission, quantum and spread of rains and the evolving situation in the global economy," said Richa Gupta of Deloitte India.

First Published: Tue, March 15 2016. 00:58 IST