Another hoot for rate cut as wholesale inflation falls to multi-year low

Wholesale Inflation, or WPI, continued its fall and was recorded at a negative 2.33% for the month of March. It was -2.06% in February. 

For the entire year that ended on March 31, 2014, WPI stood at 2.1% as against 6% for the year previous to last. Barring the month of May, there hasn't been a single month in the past year when WPI  hasn't declined. Moreover, since November 2014 the trend has been deflationary i.e. a negative inflation. 

Care Ratings said, "The negative inflation is a positive sign. The RBI while taking a call on the interest rates would be watching the inflationary movements closely. The RBI could cut policy rates in between the policies too if it finds the inflation numbers within its satisfactory limits."

source: tradingeconomics.com

All this makes a case for the industry in India to ask for a further rate cut from the Reserve Bank of India (RBI). The industry's stance has been that to boost growth, investment is needed and corporate aren't borrowing to invest as interest rates charged by banks on loans are high. 

The RBI has already lowered the repo rate twice this year and now stands at 7.5%. 

But the banks took a long time to cut base lending rates. They argued that cost of funds is too high and first deposit rates need to come down. It is only after Raghuram Rajan, governor, RBI chided banks during the first bi-monthly monetary policy that banks began cutting base lending rates. 

Many banks have followed through their base rate cuts and lowered their home loan rates as well. Although, the cut is so marginal that home loan borrowers are not going to be amused by the reduction in their monthly installments. 

What's to look forward is that whether RBI will cut rates in June when its second bi-monthly monetary policy is due or will it again for an out-of-turn rate cut and surprise the market.