By Manoj Kumar
NEW DELHI (Reuters) - Indian consumer inflation fell to a five-month low in August helped by smaller rises in food prices, raising hopes of an interest rate cut next month when the central bank's new governor presents his first policy review.
Raghuram Rajan, whose tenure as governor of Reserve Bank of India (RBI) ended on Sept. 4, left interest rates unchanged last month.
"The scope of 25 basis points cut in the October policy meet seems to be on the cards," said Shakti Satapathy, an analyst at AK Capital Services in Mumbai.
Annual consumer price inflation eased to 5.05 percent in August on the back of slower rises in food prices, government data showed on Monday.
The fall in food inflation and the fuel index dragged down the overall numbers to within the comfort zone of the central bank, which has targeted 5.0 percent inflation by March 2017.
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Economists surveyed by Reuters had expected annual retail inflation to come in at 5.5 percent last month, compared with 6.07 percent in July.
Food inflation was 5.91 percent last month, slower than 8.35 percent recorded in July as prices of pulses, a major staple for India's 1.3 billion population, declined in August.
Separate data released by the Ministry of Statistics and Programme Implementation showed annual growth in industrial output contracted 2.4 percent in July from a year earlier, mainly dragged down by lower production of capital goods and consumer non-durables.
In Asia, China's annual consumer inflation slowed to 1.3 percent in August, while Indonesia's pace slowed to a near seven-year low of 2.8 percent.
SPACE FOR EASING?
Many analysts expect inflation to ease further, offering new central bank chief Urjit Patel room to cut the policy rate at the meeting on Oct.4.
Prime Minister Narendra Modi faces a challenge to achieve economic growth of around 8 percent to create jobs for millions of unemployed youth, and industry has long sought lower interest rates.
Annual economic growth in Asia's third-largest economy slowed to 7.1 percent in April-June from 7.9 percent the previous quarter, putting Modi's target further out of reach.
But some analysts said the RBI may hold off until the end of the year when the inflation picture becomes clearer.
"There is a high probability of a rate cut in December but certainly not in October in my opinion," said Rupa Rege Nitsure, group chief economist at L&T Finance Holdings in Mumbai.
(Reporting by Manoj Kumar; Editing by Sanjeev Miglani and Hugh Lawson)