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HomeEconomyFall in wholesale inflation gives room to RBI to further cut rates

Fall in wholesale inflation gives room to RBI to further cut rates

WPI inflation data signals weak demand & allows RBI to further cut rates to support an economy headed for first annual contraction in more than four decades.

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New Delhi: India’s wholesale prices fell more than estimated in May, indicating easing price pressures in the economy ravaged by the coronavirus pandemic.

Wholesale prices fell 3.2% last month from a year earlier, the Commerce Ministry said in a statement on Monday. The median of 16 estimates in a Bloomberg survey of economists was for a 1.2% drop.

The data signals weak demand, and opens room for the central bank to further cut interest rates to support an economy headed for its first annual contraction in more than four decades. The consumer price-targeting Reserve Bank of India has lowered borrowing costs by a cumulative 115 basis points this year, and pledged to ease more to support growth.

“This reinforces our view that inflation shouldn’t be a barrier to further policy loosening,” Darren Aw, Asia economist at Capital Economics Ltd. in Singapore, said, expecting the RBI to move in the coming weeks. “Food prices have been broadly unchanged so far this month and global oil prices remain low. Meanwhile, weak domestic demand will continue to weigh on core inflation.”

While the wholesale prices are published by the Commerce Ministry, the Statistics Ministry, which publishes consumer price data, has withheld headline retail inflation numbers for the last two months, citing suspension of field surveys due to coronavirus-related precautionary measures.

CPI slowed to a revised 5.8% in March, data showed last month. That’s within the central bank’s 2%-6% target band, but faster than the 4% medium-term target. – Bloomberg

Also read: Global economy is set for a V-shape recovery, Morgan Stanley economists say


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