Cooling inflation creates room for more rate cut

Dhaka,  Sun,  04 December 2016
Published : 14 Oct 2016, 21:25:38

Cooling inflation creates room for more rate cut

NEW DELHI, Oct 14 (PTI): Retail inflation in September dropped to 13-month low of 4.31 per cent, mainly on account of easing vegetables prices, creating headroom for further rate cut by Reserve Bank in coming months.

Retail inflation, measured by Consumer Price Index (CPI), was 5.05 per cent in August. It was 4.41 per cent in September 2015. The previous low of 3.74 per cent was recorded in August last year.

The Reserve Bank takes into account retail inflation while deciding on its key lending rate. It has been mandated to contain inflation at 4.0 per cent, within 2.0 per cent range on either side.

Food inflation, a key concern for policy makers, decelerated sharply to 3.88 per cent in September compared with 5.91 per cent in August.

Earlier this month RBI had cut the key interest by 0.25 per cent to 6.25 per cent. Now, with inflation easing further it may consider another cut in December monetary policy review to boost industrial growth, which is in the negative zone.

As per data released by the government, inflation in vegetable segment was in the negative, contracting 7.21 per cent. The vegetable inflation was 1.02 per cent in August.

Similarly, the pulses prices were subdued last month as also of egg and milk (and its products). Inflation in case of meat and fish basket was 5.83 per cent in September, marginally down over the previous month.

However, fruits became dearer in last month over the previous months.

Crisil said that in its view the good monsoon will also push up rural incomes and boost private consumption by 90 bps this fiscal, supporting GDP growth.

"Overall, we expect inflation to average 5 per cent and GDP to grow at 7.9 per cent in fiscal 2017," it said.
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