- Analysts expect RBI to cut interest rate at its policy meet in August
- Lower food prices helped bring down overall consumer inflation
- Pulses and vegetable prices saw a sharp fall
Retail food prices fell 1.05 per cent in May from a year ago, compared with a 0.61 per cent gain in April. The fall in food prices was driven by cheaper vegetable and pulses which saw sharp price falls on a year-on-year basis.
Gaurav Dua, research head at domestic brokerage Sharekhan, said, "RBI had indicated that inflation in first half would be between 2.5 - 3.5 per cent and this is lower than that also. This clearly shows that the risk is on the downside. This opens up scope for a rate cut in August."
The RBI last week kept its benchmark interest rate unchanged while softening its hawkish stance on inflation. The central bank lowered its headline inflation forecasts to a range of 2.0-3.5 per cent for the first half of fiscal year 2017-18 and 3.5-4.5 per cent in the second half, down from 4.5 per cent and 5 per cent, respectively.
Economists say the RBI is waiting to see if inflation remains low, especially after the implementation of a goods and services tax or GST from July 1. The central bank tweaked its language in the latest statement to say risks were evenly balanced.
Calls for rate cut have grown after the economy grew at a slower-than-expected 6.1 per cent in the January-March quarter, its slowest pace in more than two years and down from 7 per cent in the previous quarter.
Separately, industrial or factory output growth rose 3.1 per cent in April, accelerating from 2.7 per cent growth in March.