Rate cut call gathers steam after inflation eases

New Delhi: As inflation slumped to a five-month low of 2.17 per cent in May, India Inc stepped up its call for the RBI to ease the interest rate, highlighting the need to boost investment for creation of jobs. It expects prices to remain benign in coming months.

The industry also urged the government to create a conducive environment for investment, capacity utilisation and augmentation of industrial production on a priority basis.

"I think the case for supporting growth is getting stronger and we hope that the RBI will take a relook at its monetary policy stance in light of these new numbers," said Pankaj Patel, President, Ficci.

Assocham expects the wholesale price index (WPI) based inflation to fall going ahead, citing risks to the Indian economy in the form of global uncertainty, rising protectionism and a renewed slowdown in the Chinese economy which could hit external demand.

"Private investment continues to face several impediments in the form of corporate debt overhang and stress in the financial sector whereas bad loans continue to increase," said Sandeep Jajodia, Assocham President.

"The WPI inflation is expected to record a sharp decline to sub-2 per cent in June 2017, led by the base effect and trends in food and commodity prices," said Aditi Nayar, Principal Economist at Icra.

She termed the recent trend of deflation in certain food items such as vegetables and pulses as worrisome from the point of view of assuring remunerative prices to farmers needed to sustain their interest in growing such crops. The decline in prices may dissuade widespread sowing of such crops in the upcoming kharif season, Nayar said.

Government data released on Wednesday showed that prices of food articles shrank by 2.27 per cent in May on an yearly basis. The inflation print for vegetables read (-)18.51 per cent. While potato saw a deflation of 44.36 per cent, for onion, it came in at 12.86 per cent.