Deputy Chairman of the Planning Commission Montek Singh Ahluwalia said on Friday that the RBI must take the improvement in price conditions into consideration while deciding on interest rate cut.
“Certainly, 4.7 per cent for the month is better than we had expected. I think it does indicate that there is distinct downturn on inflation which is welcome... They (RBI) should certainly consider it (rate cut) because it is very clear that the underline inflationary pressure is softening,” Ahluwalia said.
Factory output for April has climbed down to 2.3 per cent from 3.4 per cent in March strengthening the pitch for a rate cut. The central bank has slashed interest rates by 1.30 per cent since January 2012 but banks have reduced lending rates by a meagre 0.30 per cent.
Analysts, however, were of the view that it may be difficult for the Reserve Bank of India to cut rates in view of the sharp decline in the value of the rupee against the US dollar.
ICRA Senior Economist Aditi Nayar said: “With mounting concerns related to the size and financing of the current account deficit in April-June quarter we expect the Reserve Bank of India to desist from monetary easing in the upcoming policy review, in spite of the persistent weakness in industrial growth.”