Inflation declined to 0.48 per cent for the week ended May 23, giving head room to the government to initiate expansionary measures and prompt banks to cut rates.
While the wholesale price index stood at 0.61 per cent in the previous week, the rate of price rise was 8.90 per cent during the corresponding week a year ago.
Even though inflation declined during the week, the prices of essential food items like fruit, tea, cereals, pulses and spices became more expensive.
In the light of falling inflation, Finance Minister Pranab Mukherjee is holding a meeting with heads of public sector banks on June 10 to stress further moderation in interest rates to spur economic growth.
"My Government is firmly committed to maintaining high growth with low inflation, particularly in relation to prices of essential agricultural and industrial commodities," President Pratibha Patil said while presenting the agenda of the second UPA government at the joint session of Parliament.
This is the 12th week in succession when inflation stood below one per cent.
Meanwhile, ICICI Bank today slashed the benchmark lending rate by 50 basis points to 15.75 per cent, a move that would benefit home, consumer corporate loan borrowers.