Expert views on January inflation data

India's wholesale price index (WPI) rose a slower-than-expected 6.55% in January from a year earlier, government data showed.

Analysts on average had expected an annual rise of 6.60%, a Reuters poll showed. The January figure compares with December's provisional increase of 7.47%.

The annual reading for November was revised up to 9.46% from 9.11%.

COMMENTARY:

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.