New Delhi: Affordable food products are seen in May and slower industrial production rose in April are the strong entities to make RBI demand for rate reduction. Retail index is at 2.2% lower while industrial production expanded to 3.1%, compared to 3.8% in March and 6.5% a year ago as mining and electricity sector witnessed a recession.
Pulses production and low vegetable prices made the food index, even more, lower in terms of inflation, that is the record breaking till date. Consequently, fuel inflation is also lower on a sequential basis. This is the lowest level of retail inflation since the revised index based on 2012 prices was released.
“The forecast of s good monsoon, food inflation is expected to remain low in current fiscal year,” said DK Joshi, chief economist at rating agency Crisil.
“With real interest rate at 15-year high in 2016-17 and inflation near 2% level now, RBI cannot avert a rate cut in the August 2017 monetary policy meeting,” said Soumya Kanti Ghosh, group chief economic adviser at SBI.
If inflation is controlled in the same way and at the same speed, the rate of RBI will have remarkable cut which will make loans and banking services more affordable.
The Consumer Price Index based retail inflation was at 2.99 percent in April 2017. In May 2016, it was at 5.76 percent. Prices of vegetables declined by 13.44 per cent and that of pulses and products by 19.45 per cent.
Earlier this month, the Reserve Bank of India had left the key lending rate unchanged, citing risks to inflation.