CPI inflation at 3-month low of 5.17% in March

Consumer Price Index (CPI)-based inflation eased to 5.17 per cent in March, the lowest in three months, aided by lower food prices. For February, CPI inflation stood at 5.37 per cent, January 5.19 per cent and March 2014 8.25 percent.

Analysts polled by Reuters had expected retail inflation for March this year to stand at 5.5 per cent.

According to the CPI, food prices rose 6.14 per cent in March, compared with 6.88 per cent in February and 8.64 in March 2014.

"A subdued reading for food inflation contributed to the easing in CPI inflation in March 2015. While the extent of crop damage remains somewhat unclear, concern related to the impact of unseasonal rain on food prices is yet to completely dissipate," said Aditi Nayar, senior economist, Icra.

"If the monsoon is normal and crude oil prices do not post a significant rebound, Icra expects CPI inflation to average 5.5 per cent in 2015," she added.

Despite lower-than-expected inflation numbers, economists say Reserve Bank of India (RBI) Governor Raghuram Rajan might not cut rates at the central bank's next policy meeting, scheduled for June. An out-of-the-policy-cycle cut before that was also unlikely, they added.

"Our expectation for the year was a 25-50 basis-point cut in policy rates, and the March data does not change that. RBI does not act looking at data on a monthly basis. It will look at other larger indicators and trends, including monsoon projections," said D K Joshi, chief economist, CRISIL.

Last week, Rajan held rates at a scheduled review, waiting for banks to transmit two previous out-of-turn cuts to customers. He said his next move would depend on data related to inflation. According to the monetary policy framework, the central bank has set a target of restricting inflation to less than six per cent by January 2016.

CRISIL's Joshi said he expected the impact of unseasonal rain to be reflected in the inflation data for April and subsequent months.