The Associated Chambers of Commerce and Industry of India (ASSOCHAM) says that estimates of low wholesale price inflation in November 2015 is in line with the industry expectation and needs to be looked upon at by caution since it's in the negative territory for last 13th month.
The annual rate of inflation, based on monthly WPI, stood at -1.99% for the month of November, 2015 over November, 2014 as compared to -0.17% that was seen during the corresponding month of the previous year. WPI decline seems to have been mainly been contributed by a softening of potato, minerals, high speed diesel, sugar and iron & semis.
Mr. D S Rawat, Secretary General ASSOCHAM said, "the continuous downtrend in WPI seen over the past few months is a positive signal towards stabilization of prices but the policy makers need to check continued price pressure in pulses and onions".
The Chamber believes that as RBI has met the conditions of budgeted WPI and CPI, it gives the room for further rate cut to substitute for weakening global demand in order that the domestic investment cycle picks up.
The Chamber cautioned that pass through of the recent depreciation of the rupee will have to be carefully monitored.
The Chamber believes that moderate rise in minimum support prices of cereals, downward pressure on sugar and edible oil and benign crude oil prices and weakening global activity suggest that price will remain contained for a while.
The Chamber suggests that RBI being guided by CPI may well go up in coming months on the back foot of a not too good kharif harvest. But the RBI needs to look at generalized deflationary pressures that the CPI may not adequately capture.
The Chamber believes that in an overall deflationary situation -both globally and increasingly domestically-the RBI's current monetary policy stance, if sustained, would only further hurt growth, which is not going to help the cause of attracting FII inflows either.
Furthermore, investment is likely to respond more strongly if there is more certainty about the extent of monetary stimulus in the pipeline, even if transmission is low. Therefore the Chamber believes that RBI will front load policy action by a reduction in the policy rate by 25 basis points.
ASSOCHAM believes that action of the global capital markets or emerging markets to the Fed hike will play a role in the upcoming RBI bi-monthly monetary policy.