PTI
New Delhi
With wholesale (WPI) inflation plunging to a historic low of (-)4.95 per cent in August, India Inc on Monday said the Reserve Bank of India (RBI) must cut the benchmark rate to lower cost of finance and revive consumer demand, which is crucial for supplementing economic growth.
"CII expects RBI to reduce interest rates by 50 basis points in the forthcoming policy with statements supporting further easing in the near future," Confederation of Indian Industries' Director Chandrajit Bannerjee said.
The deflationary trend continued for the 10th month in a row, with inflation plunging to a historic low of (-)4.95 per cent in August on cheaper fuel and vegetables, putting pressure on the RBI to cut interest rate.
"Under the present circumstances, it would be most appropriate for RBI to give weight to growth considerations and announce a deeper cut in the policy rate. We hope RBI and the banking community will coherently work towards lowering of lending rates," Federation of Indian Chambers of Commerce and Industry (FICCI) President Jyotsna Suri said.
Wholesale price index-based inflation was (-)4.05 per cent in July. It has been in the negative zone since November 2014. In August 2014, inflation was 3.85 per cent.
"RBI must ensure that cost of finance to the end-user becomes competitive as it would also aid in increased purchasing power of consumers and demand for goods will increase," Associated Chambers of Commerce and Industry (ASSOCHAM) President Rana Kapoor said.
"This would surely help build growth momentum. Therefore, RBI in its upcoming policy must give due consideration to providing further fillip to demand in the economy and announce a rate cut."
However, the industry also expressed concern about deflation, saying it could lead to demand slowdown in the economy.
"Deflation is a far greater worry than inflation, considering that some fall in prices could very well result in slowing down of demand in the economy. When prices start falling, a vicious cycle of lower spending and lower demand sets in, thereby hampering growth," Kapoor added.
