Inflation at 7-year low

Inflation figure for the week ended February 28 declined to 2.43% from 3.03% the previous week. This fuelled speculation that RBI may further cut key rates. Will RBI respond so quickly? Will banks lower their lending rates? I doubt because only last wednesday it cut both repo and reverse repo by 50bp. Banks are not able to match RBI's response in cutting their lending rates because cost of funds is still high. The economy is going through bad times, companies are declaring bad results quarter after quarter and western powers are showing even worse signs. Interesting thing to note here is that even though crude prices have increased in the last two months, inflation has actually dropped steeply. This indicates just how bad the market is - very poor demand and consumption. Unless the economy recovers I doubt banks will be able to lower their rates so quickly.

The downturn in India's main export markets and slackening domestic demand have prompted Indian firms to cut production and lay off hundreds of thousands of workers, especially in the garment and jewellery sectors.
And the slide in inflation from a 13-year high of 12.91 percent last August has prompted concern the price fall is too rapid and could lead consumers to delay purchases in expectation costs will keep falling. Such an event is bad economic news as the resulting sales downturn makes growth harder to achieve.