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Thursday, June 11, 2009

Inflation at 0.13%

Offer lower interest rate

The week on week falling inflation touch a new record low. The official Wholesale Price Index for all commodities for the week ended 30 May 2009 rose by 0.1 % to 232.6 from 232.3 for the previous week.

The annual rate of inflation, calculated on point-to-point basis, stood at 0.13% for the week ended 30 May 2009 as compared to 0.48% for the previous week and 9.32% during the corresponding week of the previous year.

Primary articles the major group index rose by 0.4% to 257.7 from 256.6 for previous week, on rising food articles index. The index for food articles group rose by 0.6% to 253.9 from 252.3 for the previous week due to higher prices of eggs (11%), mutton (3%), fruits and vegetables and condiments and spices (2% each) and barley, moong and urad (1% each). However, the index for non-food articles group declined by 0.1% to 234.3 (from 234.5 for the previous week due to lower prices of raw wool (4%), raw silk (3%) and raw cotton and gingelly seed (1% each).

Another two major index, manufactured product and fuel power, light and lubricants group remained unchanged at its previous weeks level. Among manufactured product the index for food product, paper and paper product, non-metallic mineral products rose from their previous week levels. The index for food products group rose by 0.1% to 232.8 from 232.6 for the previous week due to higher prices of ghee (4%) and khandsari (2%). On a flip side the index of textile, rubber and plastic products, basic metals alloys and metal products, machinery and machine tools group registered a declined from the previous week levels. Slowdown in the demand from the advance countries led to fall in the index for textiles group by 0.1 % to 141.4 from 141.5 for the previous week due to lower prices of texturised yarn (2%). The index for basic metals alloys and metal products group also declined by 0.1 % to 255.3 from 255.6 for the previous week due to lower prices of pipes and tubes (3 %), zinc (2%) and lead ingots and zinc ingots (1%each).

The week on week sharp declined in WPI is now around zero level mark. Nominal 0.13% inflation crate space for rate cut. However the double digit prime lending rates of commercial banks is adding stress on interest rate. Prime Lending Rates of the banks have come down to the range of 11.00-12.25% as against 13.00-13.50% six months back. But they remain on elevated level Further higher interest rate adding stress on funding cost for India Inc.

The finance minister shri Pranab Mukherjee at the meeting of Chief Executives of Public Sector Banks/Financial Institutions also raised the concern for higher cost of borrowing. It is said that the reduction in key rates by RBI is not getting adequately reflected in the reduction of BPLR of banks. The banks need to address these concerns expeditiously and in adequate measure. Fall in headline inflation offer lower interest rate regime for India.

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