Indian economy may go into deflation by the second quarter of financial year 2009-10 as there are fears of inflation going below zero percent in the face of unprecedented fall in crude and commodity prices'If the current pace in inflation-decline continues, the figure (in WPI-based inflation) may slide below two percent by end-fiscal,' HDFC Bank's deputy head of treasury, Ashish Parthasarathy, said, adding 'it may fall further to below zero per cent by Q2 FY10.'
Inflation almost halved to a nine-month low of 6.61 percent from this year's peak of 12.91 percent, giving more space to the RBI to signal further cuts in interest rates.
Deflation occurs in an economy when the negative inflation prevails for a long period. In the event of deflation, the Reserve Bank will have to enhance money supply and lower rates further 'to support inflation', IDBI Gilts' Economist, Amol Agarwal said."
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