- 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.
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.