Industry For Rate Cut To Curb Liquidity Squeeze From Note Ban

New Delhi: As wholesale inflation declined for the second month in a row, calls for a rate cut by the Reserve Bank of India grew shriller, with India Inc pitching for a lower interest rate to check the temporary squeeze of liquidity after the government's move to scrap bank notes of Rs 500 and 1,000 denomination.

Going forward, prices are expected to remain muted as favourable monsoon would augment food supplies in the market and international commodity prices will continue to stay under pressure, industry bodies noted.

In the second consecutive month of decline, wholesale inflation eased to 3.39 per cent in October as food articles, led by vegetables, witnessed softening of prices.

The Reserve Bank of India is expected to announce its monetary stance in the fifth bi-monthly policy statement on December 7.

Ficci president Harshavardhan Neotia urged the RBI to continue with an accommodative stance, support the sentiment of investors and consumers and stabilise demand.

"An immediate 50 basis points cut in repo rate should be considered by RBI as well as some measures may be introduced to provide easy finance for sectors like housing, automobiles and consumer durables," he said.

PHD Chamber of Commerce and Industry president Mahesh Gupta said that demonetisation would also help prices to remain under control in the coming months.

Good monsoon behaviour and abundant supply of kharif crops coming in the market in the recent months has checked the rise in prices of many commodities, said Mr Gupta.

"The average WPI inflation stands at around 3 per cent during Apr-Oct and we are hopeful that inflation will fall below 3 per cent in the coming months," he observed, adding that the repo rate at this juncture should not be more than 6 per cent to give a big push to the economy with the new currency in circulation.

CII director general Chandrajit Banerjee said that in the prevailing scenario, the RBI should continue with its rate easing cycle to support demand in anticipation of a benign inflationary outlook for the future.

The wholesale price-based inflation, reflecting the annual rate of price rise, in September stood at 3.57 per cent. In October 2015, WPI inflation was (-)3.70 per cent.

Assocham secretary general D S Rawat said the Indian economy is in need of strong actions from the government to address the structural issues of demand and supply.

However, he said the WPI inflation figures for October may give some relief to manufacturers and producers since earlier it was hampering their pricing power and profitability and limiting their potential to increase capital expenditure.

Wholesale Price Index (WPI) inflation in vegetables witnessed deflationary pressures and was recorded at (-)9.97 per cent in October. Inflation in this category had scaled a high of 28.45 per cent in July.

The Monetary Policy Committee headed by RBI Governor Urjit Patel last month cut benchmark interest rates by 25 basis points to 6.25 per cent.