India's annual wholesale prices declined at their fastest pace in at least nine years in March on cooling oil and manufacturing costs, reflecting trends that could give the Reserve Bank room to make further interest rate cuts.
The wholesale price index (WPI) declined 2.33 percent year-on-year last month, their fifth straight fall, compared with a 1.95 percent fall forecast by economists in a Reuters poll and a provisional 2.06 percent decline in February.
The reading for January wholesale price inflation was revised to show the index fell by 0.95 percent year-on-year, a deeper fall than the 0.39 percent initially reported.
On Monday, the statistics office released data showing retail inflation, the measure most closely watched by the central bank, had eased to a three-month low of 5.17 percent in March.
With retail inflation staying well below the 6.0 percent upper end of the central bank's target range and the WPI providing more evidence of subdued price pressures, analysts expect the Reserve Bank of India (RBI) to cut interest rates by another 25 basis points (bps) by June.
Economists at Barclays Research wrote in a note after the release of the WPI data that the "continued benign trends in inflation and inflation expectations could provide room for further easing".
The central bank has cut interest rates twice this year at unscheduled meetings, but kept the repo rate on hold at 7.50 percent last week, as it waits to assess inflation pressures and give commercial banks more time to cut lending rates. It is due to review the rate again on June 2.
Although the International Monetary Fund expects India to become the fastest growing major economy in the world this year, the latest WPI data points to increasing economic slack.
Non-food manufactured product prices, a proxy for domestic demand and pricing power, fell 0.4 percent year-on-year in March compared with a 0.1 percent gain a month earlier.
"There is plenty of evidence of spare capacity in the economy, which should keep a lid on core price pressures," said Shilan Shah, India economist at Capital Economics.
"This reinforces the case for the RBI to loosen policy further over the coming months."
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