Inflation slips to 5.07%, at near 1-yr low

Indian inflation fell to its lowest in almost a year at the end of January, and analysts said last week's fuel price cut would trigger a sharp drop, providing the central bank more room to lower rates and fuel growth. Inflation has risen in two consecutive weeks, arresting the steep decline phase of the strike by truck drivers pushed up prices. But analysts said this was a mistake, and some are added to India can be for a period of deflation in May in Asia's third-largest economy slows down sharply from more than 9 percent in the last few years. "Given the current trend, inflation could settle well below 2 percent by the end of March," said Shubhada Rao, chief economist at Yes Bank in Mumbai. "As far as monetary action, we have penciled 50 basis-point cut in the repos and reverse repos rates of March. "

The wholesale price index most watched inflation measure, rose 5.07 percent in the last 12 months to 24 January lower than the previous week's 5.64 percent and below a forecast of 5.21 percent in a Reuters poll. It was the lowest reading since the 9 February when inflation was at 4.98 percent.The Reserve Bank of India left its key interest rates steady last week, says the banks have continued to communicate the benefits of earlier cuts. The lending interest rates, repos at 5.5 percent, and reverse repos rate as it absorbs excess liquidity from the system is at 4.0 percent.

Economists and political advisers have told Reuters in recent days, they expect the central bank to lower rates after the government presents its interim or preliminary budget in February 16 before the general election due in May. The partially convertible rupee was steady at 48.80/81 per U.S. dollar after the latest inflation data, little changed from Wednesday close of 48.82/93. Bond trading was interrupted by a breakdown in the market. The central bank said last week it expects the economy to grow at a six year low of 7 percent or less in 2008/09, when the global economic slow down and costly home loans rounds up activity.

Although the pace of development will be the envy of much of the world, India needs faster growth if it is to reduce the widespread poverty among the one billion-plus people and generate much needed jobs. Recent data have provided little relief. Exports, which account for almost 20 percent of India's gross domestic product is expected to price plummet by more than a fifth in January that global slow down slashes demand.

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