The official benchmark inflation rate has reached a nine-month low of 6.61 per cent, raising hopes of further fall in interest rates amid a dash of optimism that the government could announce more cuts in fuel prices in line with falling crude oil costs.
The government on Friday also approved a Rs 350-crore package to increase insurance cover for small and medium exporters who have been confronted with a shrinking world demand.
“Exporters need additional cover in the face of slowdown,” Home Minister P Chidambaram said after the meeting of the cabinet committee on economic affairs (CCEA).
The latest data could ease up credit and fuel growth in the slowing economy hit by the global financial meltdown.
Wholesale prices-based inflation declined by 0.23 percentage points, for the seventh consecutive time during the week ended December 13 as manufactured goods and food items became cheaper due to the cascading effect of fuel price cuts and other factors.
A cut in the RBI's benchmark repo rate—the rate at which the central bank lends to commercial banks—appears a distinct possibility.
Since September RBI has cut the cash reserve ratio, the proportion of bank deposit that is to be parked with the apex bank, in stages by 3.5 percentage points to 5.5 per cent. The RBI has also cut the repo rate by 2.5 percentage points to 6.5 per cent and experts are expecting another 1 percentage point reduction in the benchmark rate.