Inflation dips to 3-yr low of 7.18%;retail prices remain firm

Wholesale price based inflation falling for the third consecutive month is expected to prompt the Reserve Bank to cut interest rates in its forthcoming quarterly review of monetary policy on January 29 to boost sagging growth.

The wholesale price inflation, according to the data, eased mainly on account of fall in prices of manufacturing products and fuel and power.

However, retail inflation rose for the third successive month in December at 10.56 per cent, driven by higher prices of vegetables, edible oil, pulses and cereals.

Commenting on inflation numbers, Planning Commission Deputy Chairman Montek Singh Ahluwalia said: "I have seen the numbers. The decline is welcome still I would like to seen inflation even lower. Hopefully it will go down further."

Asked whether the RBI will cut interest rate in the upcoming policy review, he said, "I never comment on RBI policy, let's maintain some mystery about what the RBI would do."

Prime Minister's Economic Advisory Council Chairman C Ranagarajan feels RBI may lower the policy rate later this month.

"There is softening of the headline inflation. Manufacturing inflation has also come down. These indicate a situation in which RBI can stick to policy indications that it has given few weeks ago. Therefore, there is a possibility of making an adjustment in the policy rate downwards," he said.

RBI, which has kept key interest rates unchanged since April, 2012 on inflation concerns, had in its last policy review hinted at lowering interest rates in January review. MORE