“Softening core inflation should spur an easing of monetary policy by the RBI” ~ Poll.

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Wholesale prices likely rose at their slowest annual pace in more than three years last month, strengthening chances of a rate cut at the Reserve Bank of India policy meeting next week, according to a Reuters poll of economists.

February’s deceleration would be the fifth in a row, bringing inflation closer to RBI’s perceived comfort level of around 5 per cent as it comes under pressure to shore up economic growth.

The WPI, the key inflation measure, rose 6.54 per cent last month – the slowest annual rise since November 2009, according to the median forecast of 30 economists. It was 6.62 per cent in January.

Core inflation, which excludes volatile food and fuel prices, has been easing since September 2012 and the trend probably continued last month, helped by a favourable statistical base from a year ago.

“The marginal drop in the rate of inflation will be driven by a further easing of core inflation, and a lower monthly rate of food inflation,” said Aninda Mitra, India economist at Capital Economics.

“Softening core inflation should spur an easing of monetary policy at the RBI’s March 19 meeting,” added Mr Mitra, who is expecting the central bank to cut the key repo rate by 25 basis to 7.50 per cent.

The headline inflation rate, which averaged around 9 per cent since 2010, began easing last October and has since averaged just over 7 per cent.

Sticky inflation prevented the apex bank from easing monetary policy for much of last year, and after cutting its key repo rate this January it struck a cautious note on further moves.

Indeed, an HSBC purchasing managers’ survey showed prices rose at a faster pace in February, suggesting upward pressure on inflation remains.

If inflation remains sticky at 6 per cent levels, the room to cut will be limited. We don’t see rates coming off sharply,” said Yuvika Oberoi, economist at Yes Bank, who expects inflation to remain at those levels through the year.

Copyright @ Thomson Reuters 2013