Expert views on January inflation data

Workers prepare to carry a packed basket of vegetables at a wholesale vegetable market in Kolkata January 19, 2012.

NEW DELHI (Reuters) - India's headline inflation slowed to its lowest level in more than two years in January as food prices fell, which will increase the pressure on the RBI to cut rates to battle the country's economic slowdown.

The wholesale price index rose 6.55 percent from a year earlier, its slowest pace of rise since November 2009, broadly line with the 6.60 percent average forecast in a Reuters poll, after a rise of 7.47 percent in December.

COMMENTARY:

RADHIKA RAO, ECONOMIST, FORECAST PTE LTD, IN SINGAPORE

"Inflation print continued to taper in January and was in line with expectations, with modest pullback in the fuel/manufacturing components likely to cheer markets and re-ignite expectations of benchmark rate cut in March. Strong gains in the rupee have also calmed concerns on imported inflation.

"Despite growing odds for a March cut, the RBI might prefer to watch the mid-March budget before kick-starting the rate easing cycle in April. A CRR (cash reserve ratio) cut looks more likely at this juncture."

N.S. VENKATESH, TREASURER, IDBI BANK, MUMBAI

"Core inflation is finally showing signs of easing. But the RBI, which has been talking about supporting growth, could choose to wait for April policy just to make sure that fall in inflation is as per the expected trajectory.

"Nonetheless, we can expect another cut in cash reserve ratio in March to offset the tightness in cash supply that is generally seen due to advance tax outflows.

"By end of the current fiscal year we could see the 10-year benchmark bond yield to be marginally higher above 8 percent. Any move below should happen only after the rate cut."

NIRAV DALAL, PRESIDENT AND MANAGING DIRECTOR, DEBT CAPITAL MARKETS, YES BANK, MUMBAI

"These numbers are not heartening if you look at them on a sequential basis. The core manufacturing is still growing at the same pace it did in the month ago period. Unless there is a decisive pause sequentially in inflation, I would be surprised if RBI hurriedly cuts rates.

"I expect the 10-year benchmark yield to hold around 8.10-8.15 percent unless RBI announces open market operations in the two-most liquid bonds of 8.79 percent, 2021 bonds, and 9.15 percent, 2024 bonds."

ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI

"As core inflation has also come well below 7 percent, both on elevated base effect and lower price pressure, it is likely to provide the RBI more comfort on easing interest rates. We expect repo rate cut by April."

DEVEN CHOKSEY, MANAGING DIRECTOR, KR CHOKSEY SHARES & SECURITIES, MUMBAI

"The biggest factor for inflation coming down seems to be lower contribution from food commodities because of the bumper crop. We expect inflation to remain at moderate levels in the near future, and if it settles around 6 percent, it will be a happy situation. I don't think the RBI will be in a hurry to cut rates, but we expect them to monitor the situation. One of the factors they may be concerned about are the high crude prices."

ASHUTOSH KHAJURIA, PRESIDENT OF TREASURY, FEDERAL BANK, MUMBAI

"It gives more room to the Reserve Bank of India to go ahead with its interest rate cut. There is now an opportunity for the RBI to start its growth-biased monetary policy. Rate cuts could happen before March 31."

A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI

"The number is well below our estimate. Usually prices rise in January, but that has not happened to such an extent this time. The manufacturing and core manufacturing inflation has slowed down more than expected and so the headline number looks like 6.25-6.50 percent in March.

"This has raised chances of a 25 basis point rate cut in March than in April. The rupee's rebound in January has also partially helped inflation to ease."

VIVEK RAJPAL, INDIA STRATEGIST, NOMURA, MUMBAI

"This number should be taken positively by the rates market. Combine this lower inflation reading with expected OMO (open market operations) announcement today evening, we expect bonds to rally from current levels.

"This fall in core inflation bodes well to bring up the rate cut expectation. Our base case remains April cut, (but) market should from here on start assigning some probability to March rate cut."

SIDDHARTHA SANYAL, CHIEF INDIA ECONOMIST, BARCLAYS CAPITAL, MUMBAI

"If this number stays soft going ahead and the GDP print also comes soft in February then together, there is a chance that RBI may cut rates in March than in April."

JONATHAN CAVENAGH, FX STRATEGIST, WESTPAC, SINGAPORE

"A positive result in terms of INR inflation -- market wants to see lower inflation outcome so that if the growth outlook deteriorates further then RBI can support growth by cutting rates.

"This is a further step back from the stagflation scare through Q4 last year when inflation continued to accelerate and growth faltered. Net this should be a positive for INR, but maybe not today with USD/Asia sentiment reasonably upbeat."

MARKET REACTION:

* The benchmark 8.79 percent, 2021 bond yield fell 2 basis points to 8.18 percent after the data.

* The BSE Sensex was little changed, up 0.4 percent from 0.3 percent beforehand.

* The benchmark 5-year swap rate fell 3 basis points to 7.28 percent and the 1-year swap rate dropped 5 basis points to 8.04 percent, respectively, dealers said.

* The partially convertible rupee was almost steady at 49.30 to the dollar from prior to the data.

BACKGROUND:

- India's annual industrial output growth slowed to 1.8 percent in December after expanding 5.95 percent in the prior month.

- The government revised down the growth forecast for the current fiscal year ending March to 6.9 percent, lowest since the 2008 financial crisis and compared with 8.4 percent in the previous year.

- The manufacturing sector grew at its fastest pace in eight months in January as factory output surged the most on record on increased domestic and foreign demand, a private survey showed.

- The services sector grew at its fastest pace in six months during January.

- Annual car sales are likely to log their first annual decline since 2002 this fiscal year after January sales grew a tepid 7.2 percent, hurt by high financing and running costs.

- With risks to economic growth on the rise, the Reserve Bank of India (RBI) is widely expected to cut interest rates by the end of June, if not sooner.

- The RBI raised rates 13 times between March 2010 and last October to fight inflation.

- At its January policy review, the RBI cut cash reserve requirements for banks by 50 basis points to ease tight liquidity conditions, signalling a shift in policy towards reviving growth after two years of fighting inflation.

(Reporting by India Treasury Team; Editing by Ranjit Gangadharan)