India's inflation rate for the week ended April 4 dropped second straight week and to a 20-year low of 0.18% from 0.26% a week before, leaving room for the Reserve Bank of India or RBI to cut rates further in its monetary and credit policy for fiscal 2010 on April 21. The inflation rate stood at 7.71% for the corresponding week of the preceding year, data released by the Ministry of Commerce and Industry say.

Going by provisional figures, the wholesale price index or WPI for all- commodities rose by 0.4% to 228.2 from 227.5 for the previous week.

Inflation, based on the wholesale price index, declined mainly due to higher base effect and fall in prices of tea, rapeseed, mustard seed and furnace oil as well as some manufactured items covered under all-category groups and higher base effect.

The final estimate of inflation for the week ended February 7 was lowered to 3.69% from the earlier provisional figure of 3.92%.

The main index for primary articles rose by 1.1%, due to higher prices of fruits and vegetables, raw rubber, raw cotton, raw silk, arhar, urad, and moong as well as gram. However, the prices of tea, rapeseed and mustard seed dropped.

The index representing fuel, power, light and lubricants rose by 0.5% due to higher prices of aviation turbine fuel, naphtha, light diesel oil as well as bitumen, whereas the prices of furnace oil declined.

The index of Manufactured Products rose by 0.1%, due to higher prices of benzene, zinc, imported edible oil, rice bran oil, liquid injectables other than vitamins, oilcakes, PVC resins, tablets except vitamin and penicillin, khandsari, as well as zinc ingots, while those of liquid chlorine, basic pig iron, foundry pig iron, all types of acid, MS bars and rounds, steel wire, lead ingots, other iron steel, steel wire ropes, as well as caustic soda declined.

On April 21, the RBI is scheduled to announce its monetary and credit policy for the fiscal 2010. Traders expect that the apex bank might reduce the repo rate by 25-50 basis points and CRR to be fixed at 3%, from where it was moved up to deal with the influx of funds from overseas.

Looking back over the past six months, the RBI lowered its policy rates and infused more liquidity into the system through a reduction in the cash reserve ratio or CRR. The repo rate, at which the RBI lends money to the banking system, was reduced to 5% from 9%, while the reverse repo rate, which the RBI pays banks for deposits placed with it, was brought down to 3.5% from 6%. Similarly, the cash reserve ratio was reduced to 5% from 9%.

RBI Governor D. Subba Rao said the inflation slowdown was an advantage that might help increase consumer demand and reduce costs for businesses.

D.K.Joshi, Crisil's chief economist, said there was absolutely no evidence of a deflationary cycle in India, adding that demand remained strong and the downward trend might not continue beyond a few weeks.

Prime Minister Manmohan Singh and other policy makers have dismissed apprehensions that India's economy may be hit by deflation.

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