Inflation slides to 6.38 per cent; hopes on rate cut by RBI

New Delhi, Jan 1 (PTI) The year 2009 began on a positive
note with inflation sliding to a 10-month low of 6.38 per
cent, raising hopes of the RBI further reducing key policy
rates to give another booster to industry, reeling under
the slowdown.

Falling prices of food and fuel items pulled down the
rate by 0.23 percentage points during the week ended December
20, declining, for the eighth week in a row, from the earlier
level of 6.61 per cent.

Besides, the inflation data also capture the impact of
reduction in excise duty, announced on December 7, and the
cascading effect of cuts in prices of diesel and petrol by
the government in the first week of last month.

Making a case for easing monetary stance in view of
falling prices, ICICI Bank CEO and Managing Director K V
Kamath had said, "I think just now let us start by cutting
them (repo and reverse repo rates) by 1 (percentage point) or
so, and see what happens."

He further argued it would be in everybody's interest to
bring interest rates down. There is talk of the inflation rate
coming down to nearly zero ... "the economy thrives in a
low-interest rate scenario ... the repo and reverse repo rates
should be used in a small measure and see what they do to
interest rates".

According to Crisil Principal Economist D K Joshi,
the steady decline in prices will continue. By March 2009,
the rate is expected to be close to 2 per cent.

"Rate cuts are bound to happen during policy
(announcements) or even before that. I see a cut of 100 basis
points in (the) repo and reverse repo rates," Joshi said.

During the week, prices of tea, fruit and vegetables,
spices, pulses, salt and imported edible oil declined.

The index of fuel items came down by 0.5 percentage
points on account of a decline in prices of jet fuel (ATF) by
13 per cent, bitumen by 7 per cent, light diesel oil by 6 per
cent and furnace oil by 3 per cent.

The revised inflation rate for the week ended October 25
remained unchanged at 10.72 per cent.

The prices of fuel items that are not determined by the
government declined on account of softening crude oil prices
in the international market.

Crude oil prices per barrel in the international
market have declined from a peak of USD 147 to about USD 40,
which has led to substantial correction in energy prices over
weeks.

Declining fuel and commodity prices, along with sliding
inflation, will induce the Reserve Bank of India (RBI) to
further cut key policy rates. RBI Governor D Subbarao earlier
in the week met Prime Minister Manmohan Singh to discuss the
issues concerning the economic slowdown.

The government too, in its Mid-Year Economic Review
tabled in Parliament, made a strong case for reducing key
policy rates in the next six to 12 months.

During the week under review, prices of tea declined by
three per cent, and fruit and vegetables, and spices by one
per cent each, while pulses by 0.5 per cent.

In the mineral groups category, the price of chromite
slipped as high as 42 per cent while barytes became expensive
by 38 per cent.

At the same time, cement was down marginally by 0.2 per
cent while steel slipped by 11 per cent, pig iron by six per
cent and bars and rounds by four per cent each.

The index for the textile groups too declined by 0.1
per cent on account of lower prices of synthetic yarn.

However, newspaper prices rose by two per cent, gur by
three per cent and oil cakes by one per cent. PTI