Lower inflation reinforces rate cut hopes

NEW DELHI: After more than a year, inflation has come down below 4 per cent, at 3.92 per cent by the first week of February, as demand is slackening due to a slowing economy, prompting the Government and economists to say that the RBI may signal further cuts in rates.

Inflation declined by 0.47 percentage points from 4.39 in the previous week, prompting economists to project that the rate of price rise would come down to two per cent by this fiscal-end and may even turn negative subsequently.

Inflation, which both the Government and RBI tried hard to rein in after its alarming rise from the first week of June last year, is no longer such a worry, which provides enough room to the central bank to further relax money supply.

"(The) RBI is looking (at) monetary policy and will perhaps respond to it (falling inflation)," Commerce and Industry Minister Kamal Nath said.

In a statement, the Finance Ministry said food inflation declined across the board to 10.4 per cent compared to 11.45 per cent last week, but is still in double digits.

In manufactured products, the inflation rate decreased to 4.9 per cent from 5.5 per cent last week, it said.

When inflation is going towards 2 per cent, there is scope for interest rates to go down, ICICI Bank CEO K V Kamath said. RBI Governor D Subbarao said yesterday in Tokyo, "There certainly is room for cutting rates."