India's inflation cooled to its lowest in at least five years in January as food prices fell following the government's cash clampdown, but emerging price pressures mean the Reserve Bank of India (RBI) will probably keep interest rates on hold. Consumer prices rose by an annual 3.17 percent last month - their slowest pace since January 2012, when the government launched the current index series.
Economists surveyed by Reuters had expected prices to rise by 3.22 percent from a year earlier, compared with December's 3.41 percent increase. Annual retail food inflation eased to 0.53 percent last month from 1.37 percent in December, helped by lower prices for vegetables and pulses, government data showed on Monday.
In a worry for the central bank, another inflation gauge that excludes volatile food and fuel prices accelerated to around 5.1 percent in January, after hovering around 4.9 percent since September. The RBI's monetary policy committee reckons sticky core inflation could trigger wide side-effects. "The RBI is seeing upside risks to inflation and one data point is not going to change their view dramatically," said Varun Khandelwal, managing director at Bullero Capital.
"Interest rates will remain on hold in the near term." Headline inflation has been under 4 percent since November, well below the RBI's 5 percent target for March and medium-term target of 4 percent. Still, the RBI last week shocked investors by holding the repo rate at 6.25 percent and shifting its monetary policy stance to "neutral" from "accommodative".