India's inflation softened to 7.2 per cent in December as lower core inflation offset higher food prices, raising expectations that the central bank will cut rates when it meets later this month.
India's economy is on track to grow at its slowest pace in a decade this fiscal year, but high inflation has made the central bank wary of cutting interest rates to kickstart growth.
Core inflation, which excludes volatile food and energy prices, fell to 4.2 per cent in December from 4.5 per cent in November, according to the government figures released Monday.
"Both the level of headline inflation and its direction is far more comforting that initially anticipated," said HDFC Bank economist Jyotinder Kaur. "The question is not whether the central bank will cut the repo rate at its next review on January 29th ... but the extent by which it will do so."
The better-than-expected inflation data helped send the benchmark Sensex stock index up nearly 1 per cent and strengthened the rupee against the US dollar.