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Inflation at lowest in 3 decades; sparks rate cut hopes

Inflation at lowest in 3 decades; sparks rate cut hopes
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First Published: Thu, Jun 11 2009. 08 40 PM IST
Updated: Thu, Jun 11 2009. 08 40 PM IST
New Delhi: Inflation slipped to 0.13%, the lowest ever in over three decades even as prices of essential food items like pulses, fruit and vegetables, spices and eggs turned dearer.
While the wholesale price index stood at 0.48% in the previous week, the rate of price rise was 9.32% during the corresponding week a year ago.
During the week, the prices of eggs went up by 11%, mutton 3%, and fruit and vegetables and spices 2% each.
At the same time, the prices of ghee were expensive by 4% and khandsari by 2%.
However, textile items, metal products and plastic items and machinery turned cheaper during the week.
Low inflation may prompt rate cuts by banks
The lowest rate ever in over three decade could hasten the process of rate cuts by the banks.
This is the 13th week in succession when inflation stood below 1% Analysts feel that inflation could slip into negative territory in the days to come.
“We may see inflation in the negative territory which may continue till October with the lowest inflation level at minus 1.5% in July,” said HDFC Bank economist Jyotinder Kaur.
In a bid to spur economic growth, finance minister Pranab Mukherjee prodded public sector lenders to provide credit at reasonable rates.
In his address to chief executives of the public sector banks yesterday, Mukherjee said “as a financial intermediary the banks have to stand by to provide credit at reasonable rates.”
The Finance Minister had said cut in key rates by RBI is not getting adequately reflected in the reduction of prime lending rates by banks.
Most of the public sector banks, including State Bank of India, Bank of Baroda, Union Bank, Bank of Maharashtra and Canara Bank have hinted at cutting rates in couple of weeks.
At the same time easing inflation has raised expectations of policy rate cut by RBI in the first quarterly review in July.
“We expect RBI to cut rates in July by 25 basis points,” Kaur said.
However, NCAER senior fellow Rajesh Shukla said as the prices of primary articles are still high, it is not having much effect on the common man.
Among manufactured products, prices of texturised yarn eased by 2%, decorative laminates by whopping 11% and electrical generators by 6%.
Inflation for the week ended 4 April was revised upwards to 0.83% from 0.18%, as estimated provisionally.
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First Published: Thu, Jun 11 2009. 08 40 PM IST