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Inflation rate falls, rate cut calls rise

India's year-on-year inflation rate fell marginally in the week ended June 16, providing an opportunity for the central bank to reduce interest rates to give a boost to the sagging economy, analysts said.

The commerce and industry ministry data released on Sunday showed the inflation rate, as measured by the wholesale price index, fell to 5.23 per cent in the week ended June 16 from 5.44 in the previous week.

The inflation rate was 6.62 per cent in the corresponding week last year, the data showed.

"I expect the inflation rate to remain low in the coming weeks. I don't expect any pressure on prices as we are passing through a demand recession," said D K Srivastava, professor at the National Institute of Public Finance and Policy.

Analysts and industry associations have been urging the government to cut interest rates to boost the economy, which has lost pace over the recent months.

Data released by the country's national statistics agency on Friday showed the economy had expanded by just 5.2 per cent in 2000-01, sharply down from the earlier estimate of 6 per cent.

"There is every reason now to reduce interest rates further," Srivastava said.

A slew of other data over the months had shown that the Indian economy is in the grip of a severe slowdown due to poor consumption and investment demand as well as high-energy prices.

The Reserve Bank of India has lowered the benchmark bank rate only twice since January by 50 basis points each time. The bank rate currently stands at 7.0 per cent.

The official wholesale price index for all commodities (base 1993-94=100) for the week ended June 16 stood at 160.9 as against 160.8 for the previous week.

The inflation rate has stablised in the 5.0-6.0 per cent range in the recent weeks after hitting 10-year highs in February. It touched 8.57 per cent in the week ended February 10 due to a surge in petroleum product prices.

The index for manufactured products group declined by 0.1 per cent to 143.7 from 143.9 for the previous week while the index for the fuel, power, light and lubricants remained unchanged.

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