Low inflation raises hopes of interest rate cut by RBI

Retail inflation eased in February as food prices rose at a slower pace, while Wholesale Price Index stayed in negative territory for the 16th month, raising expectations of interest rate cut by the Reserve Bank next month.

Retail inflation, as measured by the Consumer Price Index (CPI), rose by 5.18 per cent in February, lower than 5.69 per cent in January.

After rising for five months in a row, retail inflation in February fell to 3-month low of 5.18 per cent as food prices including vegetables, pulses and fruits became rose at a much slower pace.

WPI-based inflation also declined for the month. It was (-)0.91 per cent, led by tumbling oil prices, according to data released by Ministry of Commerce and Industry. It was (-)0.9 per cent in January.

The declining inflation and negative industrial outlook have strengthened a case for RBI cutting interest rate in its first bi-monthly monetary policy for 2016-17 on April 5.

Consumer food prices rose by a lower 5.3 per cent in February, as opposed to 6.85 per cent increase in January.

Fruit prices dipped 0.7 per cent, while prices of pulses rose about 38 per cent.

RBI Governor Raghuram Rajan had on Saturday stated that government sticking to fiscal consolidation roadmap of reducing deficit to 3.5 per cent of the GDP in 2016-17 was comforting. On how that would feed into monetary policy, he had said “wait and see”.


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