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Inflation dips to six-month low

Inflation dipped to single digit 8.98 per cent for the week that ended November 1 from 10.72 per cent a week ago on account of declining prices of fuel and manufactured goods. Gaurav Choudhury reports.

business Updated: Nov 14, 2008 01:40 IST

India’s benchmark inflation rate fell from 10.72 per cent to 8.98 per cent for the week ending November 1, the lowest in six months, according to data released on Thursday.

This raises prospects of a cut in borrowing rates for households and corporations. For industrialists, it would mean a boost to growth, and for political leaders facing polls in the coming days, rising prices would be less of a worry.

Wholesale-price-based inflation used by the government as a thermometer to measure the economy’s heat slipped to single-digit level after 21 weeks. It had hit a high of 12.91 per cent in August, weeks before a credit crisis swamped the world.

Bankers expect interest rates to come down if the inflation rate continues to fall.

“The central bank is expected to wait for a couple of weeks more before taking a call,” said K.C. Chakrabarty, chairman and managing director of Punjab National Bank. “But in case the inflation level shows signs of easing, it may take further steps.”

Authorities, stung by the credit crisis and worsening growth outlook, have infused over Rs 200,000 crore into the system through various measures to boost credit availability.But the rates at which industry and individuals borrow is a matter of concern as it puts people off purchases and companies off profits.

The government said the latest data points towards a general decline in prices, especially manufactured and fuel products.

“Out of 318 commodities, 284 have shown no increase in prices over the last week,” a finance ministry statement said.

It has cut the cash reserve ratio—proportion of money banks have to park with the RBI— by 3.5 percentage points to 5.5 per cent, releasing about Rs 1,40,000 crore into the system.

The repo rate—the rate at which banks borrow from the RBI—has also been cut by 1.5 percentage point to 6.5 per cent.

Most banks have reduced their lending rates recently by about 0.75 percentage points, but analysts felt there was scope for further easing.