Easing retail and wholesale inflation rates to multi-month lows along with a sharp decline in industrial production reinforces the case for interest rate cut by the Reserve Bank of India (RBI) in its next review meeting in June.
The wholesale price index (WPI), a gauge of wholesale prices in the country, fell to a record low of -2.65 percent in April, remaining in the negative territory since November last year.
"Admittedly, the WPI rate of inflation is becoming less important for India's policymakers, as the CPI rate includes a wider range of goods and services and is easier for international comparisons. Nevertheless, the fact that WPI inflation has plummeted further into negative territory is unlikely to be disregarded. This reinforces the case for the RBI to continue cutting interest rates over the coming months," said Capital Economic in a note.
Besides, a measure of retail inflation eased to 4.87 per cent in April from 5.25 per cent a month ago, mainly led by a decline in food prices, raising expectations for a repo rate cut by the RBI as soon as next month.
"The benign inflation outlook ... should provide sufficient elbow room to the RBI to continue with growth inducing policy in its forthcoming monetary policy announcement," Confederation of Indian Industry Director General Chandrajit Banerjee told Business Today.
The RBI had kept key rates unchanged in its April meeting, waiting to see how inflationary pressures evolve in the months ahead.
Domestic companies have been demanding for a rate cut by the central bank as slowing investment growth pushed industrial output lower to multi-month lows.
The index of industrial production (IIP) slowed to a five-month low of 2.1 per cent in March from 4.9 per cent in February as all segments in the manufacturing sector witnessed a decline.
Prior to April meeting, the RBI had cut the repo rate by 50 basis points to 7.5 per cent since the start of this year.
"There is a significant chance of another 25 basis points cut coming in the next scheduled policy announcement in June," said Capital Economics.
Concerns over a deficient monsoon rainfall projected for this year are also expected to strengthen the case for a rate cut by the RBI.