Inflation cools to one-year low, offers room for more rate cuts

India's retail inflation, measured by the Consumer Price Index (CPI), recorded a steep decline in September to 4.31%  from 5.05% in August.

Consumer Food Price Index (CFPI) fell to 3.88% in September from 5.91% in August on account of cheaper food prices.

Retail inflation cooled to a 13-month low in September, helped by moderating food prices, giving room for the central bank to cut interest rates again if needed.

Analysts polled by Reuters had expected the CPI to rise 4.80 percent, after a 5.05 percent gain in August.

The latest prices data backed that assessment as annual food inflation sharply slowed to 3.88 percent in September from 5.91 percent a month ago.

With strong crop sowing on the back of good summer rains widely expected to keep a lid on food prices, and a benign outlook for global commodity prices, inflation is expected to remain in check.

"Until February we are going to see benign prints in CPI, which will open up space for at least one more rate cut in fiscal year 2016-17 under the present regime," said Rupa Rege Nitsure, group chief economist at L&T Finance Holdings.

After this month's surprise rate cut, many economists revised their interest rate outlook and are now expecting the central bank to cut its key repo rate further by as much as 50 bps.

Bolstering the rate cut hopes is the decision of the RBI's recently formed monetary policy committee to relax the timeline for meeting its inflation target.

The central bank now expects to hit its 4 percent inflation target by 2021 instead of 2018 as proposed earlier.

In his maiden monetary policy review in Mumbai, RBI Governor Urjit Patel who also chaired the first meeting of the new six-member monetary policy committee (MPC) announced the decision to slash the repo rate by 25 basis points to 6.25 per cent.

(with inputs from Reuters)