Low inflation and shaky industrial activities may result in RBI rate cut in August

In the view of the low inflation rates in the past coupled with a shaky trend in industrial activities, the market is largely expecting the Reserve Bank of India to bring down the interest rates in its monetary policy review that is due in August 2017. This development has further raised expectations about loans to get cheaper, in turn increasing consumer spending as well as corporate investment.      

According to the latest data, the wholesale inflation slumped to 0.9 per cent in June, marking the lowest wholesale inflation in the calendar year so far. The wholesale inflation for May 2017 stood at 2.17 per cent.

Whereas, the consumer price index (CPI) or retail inflation also slowed down steeply to 1.54 per cent in June on the falling food prices. RBI’s interest rate decisions are largely influenced by the existing retail inflation in the economy.    

The industrial activity also witnessed a sluggish trend with the factory output calculated by the index of industrial production (IIP) growing at 1.7 per cent in May, against 3.1 per cent in April 2017.   

The consumer durables also shrunk by 4.5 per cent in May, against a 7.4 per cent hike in the corresponding period in the previous year. However, consumer durables witnessed a slump of 6 per cent in April 2017.  

The RBI has maintained its key lending rate, the repo rate, at 6.25 per cent in its last two monetary policies in April as well as June, respectively.