By Manoj Kumar
NEW DELHI (Reuters) - A rise in some food prices lifted Indian retail inflation in September after it had hit a record low in the previous month, but inflation is expected to remain low thanks to falling global commodity prices.
Poor monsoon rains have led to drought in some parts of the country for the second straight year, forcing up prices for popular staples such as pulses and vegetables.
Retail inflation, which the Reserve Bank of India (RBI) tracks to set interest rates, rose to 4.41 percent in September from a revised 3.74 percent in August, data released by the Ministry of Statistics on Monday showed.
Retail food inflation for September came in at 3.88 percent, higher than a provisional 2.20 percent in August.
Economists had forecast consumer inflation to rise to 4.3 percent last month, and many of them expect it to remain below RBI's forecast of 5.8 percent by January 2016.
"Room for further rate cuts will depend on comfort of achieving 5 percent target in January-March 2017, and also developments in the global financial markets," said Indranil Pan, chief economist at IDFC Ltd.
The governor of the RBI, Raghuram Rajan, cut the policy interest rate last month to a 4-1/2-year low of 6.75 percent to support an economic recovery that is not strong enough to create jobs for India's burgeoning workforce.
The RBI cut its growth forecast to 7.4 percent for the fiscal year to end March, well below the government's initial target of 8.1-8.5 percent, but still faster than China.
Analysts say a fall in local fuel prices and the government's promise to contain fiscal deficit at 3.6 percent of GDP this fiscal year could dampen demand-led inflationary expectations in Asia's third largest economy.
"Short-term pre-emptive measures and an increase in imported supplies are expected to rein in any trickle-down impact in the weeks ahead," DBS bank said in a research note on Monday.
India's economy continues to face headwinds, particularly on the external front including risks of a long-awaited rate hike by the U.S. Federal Reserve, but low inflation suggests that the central bank has scope to cut interest rates early next year.
Last week, the International Monetary Fund cut its global growth forecast to 3.1 percent for 2015, citing weak commodity prices and a slowdown in China.
The Fund expects the Federal Reserve to start raising rates this year, although it expects the central bank to stay its hand until it sees signs of inflation rising toward its two percent target.
(Reporting by Manoj Kumar; Editing by Douglas Busvine and Toby Chopra)
