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Business News/ Money / Personal Finance/  Falling prices give RBI room to cut lending rates further
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Falling prices give RBI room to cut lending rates further

Wholesale prices posted biggest fall in more than four years
  • Last month, RBI had cut policy rates by 40 basis points, taking the key repo rate to its lowest ever 4%
  • Many banks have cut their lending rates after RBI lowered repo rate last monthPremium
    Many banks have cut their lending rates after RBI lowered repo rate last month

    India's wholesale prices posted biggest fall in more than four years, signalling weak demand, and opening room for the Reserve Bank to further cut interest rates. Wholesale prices fell 3.2% last month from a year earlier, as compared to 1.2% drop expected in a Bloomberg survey of economists.

    The annual rate of inflation, based on monthly WPI, stood at (-3.21%) (provisional) for the month of May, 2020 as compared to 2.79% during the corresponding month of the previous year, the Commerce and Industry Ministry said in a statement.

    However, inflation in food articles during May stood at 1.13%, as against 2.55% in April. In fuel and power basket, deflation stood at 19.83% in May, as against 10.12% in the previous month.

    While the wholesale prices are published by the Commerce Ministry, the Statistics Ministry, which publishes consumer price data, has withheld headline retail inflation numbers for the last two months, citing suspension of field surveys due to coronavirus-related precautionary measures.

    CPI slowed to a revised 5.8% in March. That’s within the central bank’s 2%-6% target band, but faster than the 4% medium-term target.

    "India’s wholesale prices index (WPI) entered deflation territory in May, as expected. However, the year-on-year decline in the WPI was sharper than expected, as some data gaps persist. Today’s WPI print also shows sharp divergences between retail and wholesale prices, reflecting the role of logistics and supply disruptions due to lockdown restrictions and the widening gap between retail and commodity prices," Barclays Research said in a note.

    ICRA Principal Economist Aditi Nayar said, while the rise in prices of some commodities like crude oil, may arrest the fall in the WPI going ahead, easing food price pressure portend a welcome moderation in retail food inflation.

    “Therefore, we expect another 25 bps cut in the repo rate, whenever the monetary policy committee chooses to meet next," Nayar said.

    The Reserve Bank last month cut policy rates by 40 basis points, taking the key repo rate to its lowest ever 4%.

    As per the minutes of the May 20 to 22 meeting of monetary policy committee, RBI Governor Shaktikanta Das underlined the need to ease financing conditions for reviving consumption and revitalising investment once the coronavirus-induced lockdown is lifted. (With Agency Inputs)

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    Published: 15 Jun 2020, 06:33 PM IST
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