Declining inflation ‘should propel’ the Reserve Bank of India to continue with its rate cut to support demand and boost industrial production, Indian industry bodies said on Monday.
Industry chamber Confederation of Indian Industry said that the administrative measures taken by the government to rein in inflation provide hope that the rate of price rise would continue to remain range bound and within the specified RBI’s target.
"This should propel the RBI to continue with its rate easing cycle to support demand and strengthen the nascent recovery in industrial production," it said in a statement.
Inflation, based on Wholesale Price Index, remained in negative territory for the seventh month in May, registering a decline at (-)2.36 per cent on account of subdued prices of food items, fuel and manufactured goods.
Federation of Indian Chambers of Commerce and Industry said that though monsoon has been predicted to be below normal this year, the government has already outlined its preparedness and plan of action to deal with any contingency on this account.
"This should ensure keeping in check any pressure on inflation arising from the food segment," it added.
Assocham said that the continuous downtrend in Wholesale Price Index seen over the past few months is a positive signal towards stabilisation of prices and this should surely help in further boosting the economic activity.
It said, however, that a constant decline in the figures raises concerns especially for the manufacturing sector.
"A long term sequential drop of inflation of manufacturing products could adversely impact their pricing power," it said, adding "government should undertake structural policy steps aimed at reducing the supply side bottlenecks in farm sector".
On June 2, the Reserve Bank had cut the key interest rate by 0.25 per cent, third time this year.
