<div>India's headline inflation eased to a five-month low of 6.16 percent in December from a 14-month high, helped by a softening in vegetable prices, government data showed on Wednesday.<br /><br />The wholesale price index's annual rise compared with a 7.0 percent jump forecast by economists in a Reuters poll. In November, wholesale prices, India's main inflation measure, rose 7.52 percent, their fastest pace in 14 months.<br /><br />The reading for October headline inflation was revised to 7.24 per cent from 7.0 per cent.<br /><br /><strong>Commentary</strong><br /><em>Anubhuti Sahay, Economist, Standard Chartered In Mumbai:</em><br />"If you remember (central bank) governor Rajan's three preconditions, he talked about a reduction in core CPI and WPI numbers, apart from the headline numbers. That has not materialised. If one holds him literally to that, it can still go either way. However, we are calling a hold based on the substantial easing in headline numbers."<br /><br /><em>Nizam Idris, Head Of Fixed Income And Currency At Macquarie Group In Singapore:</em><br />"Given India's large current account deficit, the rupee requires large equity inflows just to stand still against the US dollar. Lower inflation would allow the RBI to delay rate hikes, lending support for the domestic equity market and the rupee.<br /><br />"While we continue to dislike the INR over the medium term, we think the USDINR will consolidate around 61.0-62.0 in the near term on favourable data mix. We, however, think inflation numbers are likely to head higher from March."<br /><br /><em>Suresh Kumar Ramanathan, Regional Rates And Currency Strategist, CIMB, Kuala Lumpur:</em><br />"Lower WPI suggests the RBI staying pat in the medium term is a likely scenario. I don't see the RBI showing any urgency to announce any new policy measures at this point of time, particularly when we have elections around the corner.<br /><br />"Food prices are lower, fuel is also low, and manufacturing inflation is within expectations, so naturally what the RBI did last month by staying pat was a prudent decision. Going forward, we are evaluating whether this decline in inflation is sustainable. If it does, then RBI was right in raising rates in September 2013."<br /><br /><em>Upasna Bhardwaj, Economist, Ing Vysya Bank, Mumbai:</em><br />"The moderating headline retail and wholesale inflation have definitely increased the likelihood of RBI maintaining a status quo in its January meeting. However, with core inflation inching up, we believe the RBI will continue to sound hawkish and hence do not rule out another 25 basis points of rate hike in the next few months".<br /><em><br />Shakti Satapathy, Fixed Income Strategist, AK Capital, Mumbai:</em><br />"As expected the softening was a result of falling primary article index led by easing food prices and a decline in fuel index. With easing food prices, stable currency, and favourable global crude movement, we expect the central bank to pause rates in the January policy meet.<br /><br />"However, the chances of one more rate hike in the coming months can't be ruled out given the persistent rise in the non-food manufacturing index and stickiness seen in the retail core inflation. Further, the upward revision in the October number along with coming months' final revisions would be closely looked at."<br /><br /><em>A. Prasanna, Economist, ICICI Securities Primary Dealership Ltd, Mumbai:</em><br />"The WPI data has surprised on the downside and seen in conjunction with the CPI data should strengthen the case for a rate pause in the January review. However, with core CPI inflation quite sticky, I think that RBI is not done with rate hikes. I expect another 25 basis points rate hike by March."<br /><em><br />Anjali Verma, Economist At Phillipcapital In Mumbai:</em><br />"The maximum impact of the vegetable price decline is reflecting in the current numbers. If vegetable prices remain stable, January-February numbers should also be lower. These numbers obviously mean that a rate hike is ruled in January, and rates may even remain stable for an extended time."<br /><br /><em>Rupa Rege Nitsure, Chief Economist, Bank Of Baroda, Mumbai:</em><br />"WPI data has been showing a significant fall due to the easing in food prices on expected lines. But based on one observation we cannot make a assumption of a trend.<br /><br />"If we look at the services PMI, IIP, CPI and WPI combined, then these four data points suggest the RBI will maintain a status quo in the next policy.<br /><br />"But I don't expect any rate cuts to begin in the near future because inflation continues to remain way above the RBI's comfort zone. There is also potential upside risks to inflation coming from global commodity prices especially oil prices."<br /><br /><em>Shubhada Rao, Chief Economist, Yes Bank, Mumbai:</em><br />"Primary articles has driven the inflation data this time. The RBI governor will watch for month-over-month momentum in core inflation. However, this data, in conjunction with what we saw in CPI, does indicate the RBI would continue with the previous meeting -- which is watching and waiting for more data. We believe a rate hike may not come in this meeting."<br /><br /><strong>Market Reaction</strong></div><ul><li>India's benchmark 10-year bond yield fell 5 basis points (bps) to 8.63 per cent from levels before the data.</li><li>The benchmark 5-year swap rate and the 1-year rate each fell 4 bps, according to dealers.</li><li>The benchmark index, which had been up 0.9 percent before the data, extended gains to be up 1.1 per cent.</li><li>Interest rate-sensitive stocks also gained. The NSE bank sub-index was up 1.8 percent, helping push the broader Nifty to a 1.1 percent gain.</li></ul><div><br /><strong>Background</strong><br />A cooling in food prices slowed down retail inflation to a three-month low of 9.87 percent in December, data showed this week.<br /><br />Industrial production output shrunk for the second straight month in November, by 2.1 percent, data showed last week, dragged down by a contraction in consumer goods output.<br /><br />India's trade deficit widened to $10.14 billion in December, data showed last week, on slowing export growth which could pose pressure on the country's fragile current account balance.<br /><br />(Reuters)</div>
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