New Delhi, Feb. 14: Headline inflation fell to its lowest level in three years in January, stoking hopes of a sharper cut in policy rates by the Reserve Bank of India.
The wholesale price index rose to 6.62 per cent in January from 6.55 per cent a year earlier, the slowest pace since November 2009. In December, inflation stood at 7.18 per cent, which the apex bank had considered too high to warrant any deep cut in rates.
Finance ministry officials said they hoped the inflation figure and the steps being taken to put a check on expenditure would encourage the RBI to consider “deeper rate cuts that could help the turnaround, which we are witnessing in the economy”.
Last month, the RBI had cut the repo rate by 25 basis points to 7.75 per cent. Yes Bank’s Subhada Rao in a note said, “Continued moderation in January inflation has raised the possibility of another quarter per cent rate cut in March.”
However, disappointing GDP and industry growth forecasts at 5 per cent and 1.9 per cent, respectively, are likely to weigh on the minds of the policymakers.
The RBI will also keenly watch the Union budget to see how the government delivers its promise to cut subsidy spending and thereby reduce fiscal deficit before making up its mind.
Fixing the sluggish economy, which has thrown up few job opportunities for the young last year, is the top priority for the UPA government which is headed for the general elections next year.
A cut in rates is likely to boost investment flow and help in economic recovery.