As inflation dips, RBI must continue slashing rates: India Inc

The situation demands urgent action to boost industrial and consumer demand and lowering of interest rates and easy credit availability should be the top priorities of govt and RBI, says Assocham President

With inflation dipping to (-)2.06 per cent in February, India Inc today said RBI must continue slashing policy rates to revive demand in the economy.

This is the fourth month in a row that wholesale inflation stayed in negative zone.

"The situation demands urgent action to boost industrial and consumer demand and lowering of interest rates and easy credit availability should be the top priorities of government and RBI," Assocham President Rana Kapoor said in a statement.

"Re-energising of the manufacturing sector is imperative and the overall focus must now shift to reviving GDP expansion, industrial growth, boosting consumer and investor sentiments," Kapoor added.

The wholesale inflation dipped to (-)2.06 per cent in February as prices of food articles, manufactured items and fuel products fell during the month.

"While the subdued global commodity prices have aided the softening of inflation trend in India, weak market demand is also an important aspect. RBI should take further measures to strengthen the demand impulses in the economy and continue with its rate cutting cycle in the coming month," said FICCI Secretary General A Didar Singh.

He said the government and Reserve Bank should also engage with banks to ensure that lowering of policy rates already affected is passed on to the investors and consumers in the form of lower lending rates.

Inflation in food articles category stood at 7.74 per cent in February while that in manufactured products category, it was 0.33 per cent, as per official data released today.

The decline in prices of manufacturing goods points to fragile demand conditions and indicates that robust recovery has yet to set in despite the improved industrial performance evidenced last month, said CII Director General Chandrajit Banerjee.

"We are hopeful that RBI would cut policy rates by 100 basis points (or 1 per cent) during the course of the year," Banerjee said.

The WPI inflation numbers would be taken into account by RBI for formulating its next monetary policy announcement, scheduled on April 7.

The RBI had lowered policy rates by 0.50 per cent between January-March to prop up economic growth as it observed inflationary pressures easing.