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Industry demands RBI rate cut as inflation falls

In the backdrop of falling inflation, the Reserve Bank of India should consider cutting key rates in its upcoming monetary policy review, a move that would help lessen the burden of high costs of credit for manufacturers and exporters, said industry body FIEO on Tuesday.

"With CPI moving at a margin and WPI numbers easing, inflation will be within manageable limit which should prompt the RBI to revisit interest rate regime as high interest rate is affecting manufacturing and exports," said FIEO president M. Rafeeque Ahmed in a press statement.

According to official figures released on Tuesday, India's wholesale price-based inflation decelerated to 4.89 percent in April, as prices of vegetables, milk, egg, meat and fish eased.

The WPI inflation figures came a day after release of data on April consumer price-based inflation (CPI) that decelerated to 9.39 percent in April from 10.39 percent in March.

"The effect of the same is seen in depressed IIP numbers and moderate export growth," the FIEO chief added.

India's industrial output grew by 2.5 percent in March, as against a contraction of 2.8 percent in the corresponding month of 2012, according to recent data released last week. 

The FIEO chief  advocated for steeper 75-100 basis points cut in the interest rate and expect the same to be done by RBI.

Another industry body, PHD Chamber, said that continuous deceleration in WPI inflation, during the last four months, from 7.3% in January 2013 to 4.9% in April 2013 will help economy to post better growth numbers. The real GDP growth is expected to rebound to 6.5% trajectory in 2013-14.

The chamber president Suman Jyoti Khaitan said, "We can look forward to a period of consolidation and stability which will help the economy gain in growth momentum, going forward."

Recently, RBI, in its annual monetary policy review, had cut repo rate (the rate at which the central bank lends to commercial banks) by 0.25 percent. 

Decline in inflation and softening monetary policy stance will facilitate rapid expansion in the industry scenario, going forward, bringing it back on the steady growth trajectory, he added . 

The prospects of the Indian economy look bright in 2013-14 with the expectation of more consolidated growth and macro economic stability. However, there are a host of reforms, which if implemented could make the industry environment conducive for investments and help the economy grow faster and attain its potential growth rate trajectory, going forward, said Khaitan.