Sept WPI inflation hits near 5-year low of 2.38 pct

NEW DELHI (Reuters) - India's wholesale price inflation eased to a near five-year low in September, helped by a moderation in food and fuel prices, but the risk of price shocks is expected to prevent the central bank from cutting interest rates soon.

The wholesale price index (WPI) rose an annual 2.38 percent last month, its slowest pace since October 2009, compared with a 3.3 percent jump forecast by economists in a Reuters poll. In August, wholesale prices rose 3.74 percent.

The reading for July WPI inflation was revised to 5.41 percent from 5.19 percent earlier.

"The sharp moderation in inflation has been a culmination of a favourable base effect, moderation in food prices, softening crude oil prices and weak growth," said Upasna Bhardwaj, an economist at ING Vysya Bank.

Data released on Monday showed consumer price inflation, which the Reserve Bank of India (RBI) tracks to set policy lending rates, dropped sharply to 6.46 percent in September, the lowest since the latest data series started in January 2012.

The moderation in price pressures was driven by cheaper food and fuel. Wholesale food inflation dropped in September to 3.52 percent on lower vegetable prices from 5.15 percent a month ago.

Falling global crude oil prices, meanwhile, drove fuel inflation down to 1.33 percent last month from 4.54 percent in August.

Notwithstanding the deceleration in inflation, the RBI is concerned that poor monsoon rains and geopolitical tensions that affect oil could drive up prices, making it tougher to reduce retail inflation to 6 percent by 2016.

As a result, analysts widely expect it to keep interest rates on hold until the April-June quarter.

"Going into next year, we expect RBI to assess the diminishing upside risks to its 6 percent target closely and press the trigger only when it is convinced of a meaningful correction in prices," said Bhardwaj.

The RBI sent a strong signal last month that it would hold off cutting rates until it was confident that consumer inflation could be reduced to a target of 6 percent by January 2016.

(Reporting by Rajesh Kumar Singh; Additional reporting by Neha Dasgupta in Mumbai; Editing by Eric Meijer)