Giving a much needed relief to the policy makers, the headline inflation for May declined to 43-month low of 4.7 per cent, much below the comfort level of RBI, driven by declining prices of manufactured goods.
But the steeply falling rupee, which has lost 6.5 percent since the beginning of May, may play the party pooper for the markets and industry, as it may tie the hands of the Reserve Bank on Monday when its review its monetary policy. Falling for the fourth straight month, wholesale price-based inflation reached the lowest level since November 2009 when it was 4.50 percent. Headline inflation stood at 4.89 percent in April. In May 2012, it was 7.55 percent.
However, inflation in food articles category, which has 14.34 percent share in the WPI basket, rose to 8.25 percent in May. It was at 6.08 percent in April. But this was to some extent offset by the fall in manufacturing inflation which declined to 3.11 percent in May from 3.41 percent in April. Industry chamber Ficci demanded that RBI should consider a rate cut and persuade banks to pass on rate cut benefits to borrowers. "With the downward trend in the prices holding on, RBI can consider a cut in the policy rate in the forthcoming monetary policy review," it said.
Commenting on inflation numbers, Finance Ministry said they want lower interest rates and better monetary policy transmission. Analysts, however, are of the view that it may be difficult for the Reserve Bank to cut rates in view of the sharp decline in the value of the rupee against the dollar.
