India’s falling prices give RBI room to ease policy further

By Karthikeyan Sundaram and Vrishti Beniwal

India’s wholesale prices fell more than estimated in May, indicating easing price pressures in the economy ravaged by the coronavirus pandemic.

Wholesale prices fell 3.2% last month from a year earlier, the Commerce Ministry said in a statement on Monday. The median of 16 estimates in a Bloomberg survey of economists was for a 1.2% drop.

The data signals weak demand, and opens room for the central bank to further cut interest rates to support an economy headed for its first annual contraction in more than four decades. The consumer price-targeting Reserve Bank of India has lowered borrowing costs by a cumulative 115 basis points this year, and pledged to ease more to support growth.


Graph inflation

“This reinforces our view that inflation shouldn’t be a barrier to further policy loosening,” Darren Aw, Asia economist at Capital Economics Ltd. in Singapore, said, expecting the RBI to move in the coming weeks. “Food prices have been broadly unchanged so far this month and global oil prices remain low. Meanwhile, weak domestic demand will continue to weigh on core inflation.”

[Source – Economic Times]


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