Indian inflation fell more than expected to a 10-month low in late December and is seen heading sharply lower on the back of an expected fuel price cut, giving authorities greater freedom to prop up stumbling growth.
The wholesale price index, India''s most widely watched inflation measure, rose 5.91 percent in the 12 months to December 27, slower than 6.38 percent in the previous week and below a forecast of 6.09 percent in a Reuters poll.
With inflation now well within the central bank''s forecast of around 7 percent for 2008/09, some economists expect it to cut interest rates again at its January 27 policy review to support an economy slowing faster than predicted. "Clearly inflation has declined at a much more rapid pace than what we had anticipated. Though there may be some blips, like the truckers'' strike, it is heading towards 2 percent by March," said Abheek Barua, chief economist at HDFC Bank in New Delhi.
"The headroom for more fiscal and monetary measures has increased more than what we had anticipated in December." The latest figure was the lowest inflation reading since February 23, when it stood at 5.69 percent. India''s central bank slashed its main interest rates by 1 percentage point last week, its fourth cut in four months, and the government tried to draw more funds into the country to boost faltering growth.
India''s $1 trillion economy, Asia''s third-biggest, has shown persistent signs of slowing amid the global financial crisis and high borrowing costs at home, after growing at 9 percent or above for the past three years. Economists and policymakers expect expansion to moderate to around 7 percent this fiscal year and the central bank chief has said 2009/10 looked like being an even more challenging year.