The annual wholesale price inflation (WPI) eased to 7.18% in December, government data showed on Monday. It was below analysts' expectations of 7.40% and down from 7.24% annual rise in November.
Here is what the analysts have to say:
Suresh Kumar Ramanathan, CIMB, Kuala Lumpur
"Pipeline price pressures are down but end prices are still high. Once again the dilemma RBI faces in the midst of stubborn price pressures that shows no tendency to ease. It's once again down to the wires for RBI at the end of this month when monetary policy is deliberated. Weak industrial production, easing pipeline price pressures but high CPI, a very delicate task for RBI ahead. I still see an even chance of cut but as mentioned, the RBI is in a dilemma."
A Prasanna, ICICI Securities, Primary Dealership, Mumbai
"We expect the manufacturing index to go up in January. But, based on this data, we expect the RBI to cut rates by 25 basis points. We could see inflation below 7% by March, but the caveat is diesel prices. At some point, the government has to raise diesel prices, as well as coal, and electricity prices. So, we see a scope for a total of 50 basis points cut in rates in January-March and then we expect a lengthy pause from the RBI."
Radhika Rao, Forecast Pte, Singapore
"While emerging signals on price pressures are still mixed - December CPI released quickened to 10.6% y-o-y on higher food costs, along with elevated PMI input/output price indices - odds for a 25 bps cut at the January meeting have increased.
"We believe the RBI will draw comfort from a) marked pullback in the non-food manufacturing index at 20-month low b) headline WPI could ease below 7% by March c) government's intention to rationalise suppressed price elements and possibly introduce reforms-oriented measures at the end-February budget.
"We pencil in 25 bps cut at the January 29 rate review, followed by another like-sized cut in March."
Abheek Barua, HDFC Bank, New Delhi
"The number is much better than we had anticipated and it has come on the back of continued improvement in core inflation, which is heartening as it shows monetary policy has been working.
"The probability of a rate cut in January end has increased but the next question is whether it will be 25 basis points or higher. I think the RBI would want to be cautious given that there could be fuel price increase, and the passenger price increase could have an impact on CPI.
"To address the liquidity shortage, I think the RBI will address it through open market operations (OMOs) rather than CRR. I think it will be a dovish policy, and they will certainly give a guidance on OMOs. They would want to keep the CRR powder dry for the exchange rate situation."
Robert Prior-Wandesforde, Credit Suisse, Singapore
"We also have the CPI numbers out as well which were a surprise ... in the opposite direction, and moved up quite sharply.
"We know the WPI is more important, but we also know the CPI can't be ignored.
"I think it's fairly finely balanced but 50 basis points [in rate cuts] is slightly more likely than 25 in our view."
Saugata Bhattacharya, Axis Bank, Mumbai
"The revision [for October] has happened on the downside. That's very good news. The increase in the food price index is because of the cold wave in north India. It is a seasonal factor and not worrisome.
"We are definitely looking at a rate cut in January. The debate is whether it will be one large 50 basis points cut, or in small steps. Going by the recent economic indicators, we think the Reserve Bank of India might actually go for a 50 basis points cut."
Rupa Nitsure, Bank of Baroda, Mumbai
"Headline inflation at 7.18% is a welcome relief. Core inflation has further eased to 4.24% on sustained reduction in the pricing power of manufacturing companies. Today's inflation reading combined with depressed industrial scenario strengthens the case for a 50 basis points reduction in the repo rate in the next review of the Reserve Bank's policy."
Samiran Chakraborty, Standard Chartered Bank, Mumbai
"We are looking at 25 basis points rate cut in January and for the full year we see 100 basis points of cuts. We have to see how much of diesel price increase is effected, whether it is 1 rupee a month or a one-time price increase. If the government removes the entire subsidy on diesel, then it will have a 80-100 basis points impact on inflation.
"We will probably see inflation below 7% by March. What is important is that inflation is trending down but headline inflation is still high, and given that we will see 25 basis points of rate cut rather than 50 basis points."
Leif Eskesen, HSBC, Singapore
"There is a relatively good chance that the Reserve Bank of India may act [cut interest rates] as soon as January. The historical revision is encouraging and breaks a trend. That together with a lower headline number could be encouraging to the RBI."
Shubhada Rao, YES Bank, Mumbai
"Quite clearly, there's relief on the manufacturing trend. In any case, the data on the CPI was not very positive, although the core CPI inflation at 0.51% was a 9-month low. The data gave mixed signals.
"In terms of policy imprint, we continue to expect the RBI will cut rates by 25 basis points in January and give a commitment to maintain comfortable liquidity through open market operations. However, the quantum of monetary easing has become conditional due to higher headline CPI number.
"Between January and March, we expect the government to raise diesel prices by two rupees and LPG prices by Rs 50/cylinder. The direct impact of that on inflation should be about 30-35 basis points."
Upasna Bhardwaj, ING Vysya Bank, Mumbai
"WPI figures provide considerable respite, especially with core inflation falling to the lowest level since April 2010. However, the elevated retail inflation continues to point towards persistently high food price pressures. Nevertheless, the easing WPI inflation does provide scope for RBI to cut policy rate by 25 bps in the forthcoming meeting and begin cautiously focusing on growth."
Shakti Satapathy, AK Capital, Mumbai
"The moderation in the core inflation at 4.32% is quite encouraging and makes a case for higher rate cut (50 bps) in the forthcoming policy meet. Having said that, the comfortable yield levels and lesser threat of a high interest scenario in the coming days might push the central bank in taking a conservative rate cut of 25 bps in a staggered manner over next two policy meets. We believe the higher base and softening core to guide the RBI in shifting its focus to growth."
Sujan Hajra, Anand Rathi Securities, Mumbai
"The WPI numbers are not only coming off, the revision was also lower. Inflation is clearly on a downward trajectory.
"With the industrial output numbers released earlier, it clearly looks that the RBI will be inclined to cut rates in January."