Subbarao expects inflation to trend lower in fourth quarter

Rate cut pressure has been mounting

Inflation is expected to trend lower during January-March, Reserve Bank of India Governor D Subbarao said on Thursday, a month after he had indicated the central bank might ease monetary policy as early as January.

"It (inflation) has come down from its peak, but at 7.50 percent, inflation is still high," he told reporters after the RBI's board meeting in Kolkata.

"We are expecting that inflation will trend down starting the fourth quarter of this fiscal year. As we go into our mid-quarter policy on December 18 and the quarterly policy on January 29, we will take into account the growth-inflation trajectory and calibrate our monetary policy accordingly."

The headline inflation rate, based on the wholesale price index, rose an annual 7.45 percent in October, the slowest pace in February.

The RBI projects WPI at 7.5 per cent at March-end, after revising the projection upwards twice earlier this year.

The RBI, which was a hawkish outlier long after many central banks began loosening policy, has refrained from lowering rates following sticky and elevated inflation since the April rate cut despite slowing growth. However, pressure from government and industry bodies has mounted over the last few months to cut policy rates due to the sharp slowdown in economic growth.

India's services sector, which makes up nearly 60 per cent of economic output, grew at its weakest pace in over a year in November, an HSBC services Purchasing Managers' Index, showed on Wednesday.

In the October review of the monetary policy, Subbarao said there was a "reasonable likelihood" of further easing in the January-March quarter.