The year 2009 began on a positive note with inflation sliding to a 10-month low of 6.38 per cent, raising hopes of Reserve Bank of India further reducing key policy rates to give another booster to industry, reeling under the slowdown.
Falling prices of food and fuel items pulled down the rate by 0.23 percentage points during the week ended December 20, declining, for the eighth week in a row, from the earlier level of 6.61 per cent.
Besides, the inflation data also capture the impact of reduction in excise duty, announced on December 7, and the cascading effect of cuts in prices of diesel and petrol by the government in the first week of last month.
Making a case for easing monetary stance in view of falling prices, ICICI Bank CEO and managing director K V Kamath had said, "I think just now let us start by cutting them (repo and reverse repo rates) by 1 (percentage point) or so, and see what happens."
He further argued it would be in everybody's interest to bring interest rates down. There is talk of the inflation rate coming down to nearly zero ... "the economy thrives in a low-interest rate scenario ... the repo and reverse repo rates should be used in a small measure and see what they do to interest rates".
According to Crisil Principal Economist D K Joshi, the steady decline in prices will continue. By March 2009, the rate is expected to be close to 2 per cent.
"Rate cuts are bound to happen during policy (announcements) or even before that. I see a cut of 100 basis points in (the) repo and reverse repo rates," Joshi said.
During the week, prices of tea, fruit and vegetables, spices, pulses, salt and imported edible oil declined.
The index of fuel items came down by 0.5 percentage points on account of a decline in prices of jet fuel by 13 per cent, bitumen by 7 per cent, light diesel oil by 6 per cent and furnace oil by 3 per cent.
The revised inflation rate for the week ended October 25 remained unchanged at 10.72 per cent.
The prices of fuel items that are not determined by the government declined on account of softening crude oil prices in the international market.
Crude oil prices per barrel in the international market have declined from a peak of $147 to about $40, which has led to substantial correction in energy prices over weeks.
Declining fuel and commodity prices, along with sliding inflation, will induce the RBI to further cut key policy rates. RBI Governor D Subbarao earlier in the week met Prime Minister Manmohan Singh to discuss the issues concerning the economic slowdown.
The government too, in its Mid-Year Economic Review tabled in Parliament, made a strong case for reducing key policy rates in the next six to 12 months.
During the week under review, prices of tea declined by three per cent, and fruit and vegetables, and spices by one per cent each, while pulses by 0.5 per cent.
In the mineral groups' category, the price of chromite slipped as high as 42 per cent while barytes became expensive by 38 per cent.
At the same time, cement was down marginally by 0.2 per cent while steel slipped by 11 per cent, pig iron by six per cent and bars and rounds by four per cent each.
The index for the textile groups too declined by 0.1 per cent on account of lower prices of synthetic yarn.
However, newspaper prices rose by two per cent, gur by three per cent and oil cakes by one per cent.
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