* Reuters poll predicts December WPI inflation of 7.4
* Central bank had expected December inflation at around 8
* Rate cut expectations strong as core inflation trend
By Suvashree Dey Choudhury
MUMBAI, Jan 14 India's headline inflation is
likely to have risen in December by less than the central bank
projected, and should reinforce hopes for a cut in interest
rates this month to boost an economy that is set to post its
slowest growth in a decade.
Data to be released later on Monday is expected to show the
wholesale price index (WPI), India's main inflation
gauge, probably rose an annual 7.4 percent in December,
according to a Reuters poll, reversing a declining trend and
faster than the 7.24 percent seen in November.
However, the Reserve Bank of India had projected December
inflation of around 8 percent in its October policy review, when
it had also raised its March-end inflation projection by 50
basis points to 7.5 percent.
While food prices are keeping the headline inflation figure
high, non-food manufacturing, or core inflation, has been
falling and dropped to 4.5 percent in November.
"If core inflation remains below 5 percent, it increases the
chance of the central bank cutting rates by 25 basis point in
January," said Rahul Bajoria, economist at Barclays Capital in
The RBI's next policy review is on Jan. 29, and analysts
expect a cut of at least 25 basis points in the policy repo rate
, which has been held at 8.0 percent for past the
nine months despite a sharp slowdown in the economy.
Upward revisions in earlier provisional numbers could limit
the extent of rate cuts by the RBI. The September WPI figure was
adjusted up by 26 basis points to 8.07 percent and economists
expect a similar revision in the October number as well.
"If magnitude of revisions are high, that definitely
reflects hidden demand which was not accounted for earlier and
that could decelerate the pace of rate cuts," said Saugata
Bhattacharya, chief economist at Axis Bank.
The RBI said last month that it expects the inflation
numbers to edge up in December and January before moderating.
However, the WPI numbers may not cool as much as expected
after January if the government implements a proposal to raise
diesel prices every month by one rupee per litre.
"If diesel prices are raised every month, that will push up
inflation expectation as the second round impact of such
continuous price increase will also be high," said A. Prasanna,
chief economist at ICICI Securities Primary Dealership.
New Delhi is trying to mend its finances as the end of the
fiscal year in March nears, by raising railway passenger fares
and subsidised fuel prices to reach its fiscal deficit target of
5.3 percent of GDP.
Asia's third-largest economy is likely to post its slowest
growth in a decade this fiscal year after investment sentiment
was hit by sluggish policymaking, a swelling fiscal deficit,
high inflation and elevated interest rates. India is likely to
post a growth of 5.5-5.6 percent in 2012/13.
Industrial output contracted 0.1 percent in
November on weak capital goods production and muted consumer
The RBI, in recent years one of the most hawkish central
banks globally, was unable to shift its policy stance towards
growth until December due to stubborn inflation, even as its
peers in China, Brazil and South Korea became more aggressive on
policy easing to support growth.
(Editing by Tony Munroe and Simon Cameron-Moore)