Why in news?
Consumer price inflation had slipped to 1.54%.
Why there is a reduced inflation?
- Activity in the manufacturing sector has also slowed down.
- GST-related adjustment and subsequent destocking may have reduced industrial growth.
Why it is a matter of concern?
- Moderate inflation levels are needed to drive consumption, under the assumption that higher levels of spending are crucial for economic growth.
- Monetary Policy Committee (MPC) fixed the inflation levels to maintain in the zone between 2 and 4%.
What is now expected of the RBI?
- RBI has been maintaining the Repo rate at 6.25% since October 2016.
- Since the inflation is lower now, a cut in the rate is expected.
Why RBI should be cautious before lowering Repo?
- Several State governments have taken fiscally expansive measures like loan waivers.
- This is will increase the purchasing power of people which in turn might increase the inflation.
- The monsoon and its effect on prices is yet to be felt.
- The impact of the introduction of the GST, will reflect in the prices.
- Increased allowances under the Seventh Central Pay Commission’s award could also transmit into price gains.
- All these would have had a complementary effect of low inflation.
Source: The Hindu
