RBI may Revise/Ease Rates on 24 JAN.

NEW DELHI (Reuters) - India's wholesale price index was almost in line with market expectations at 7.47 percent in December from a year earlier, government data showed on Monday.

The median forecast in a Reuters poll was for a 7.5 percent rise.

The WPI, which is more closely watched than the consumer price index (NYSEArca:CPI - NewsCPInull) in India as it covers a higher number of products, remained stubbornly above 9 percent for a year until November.

In response, the central bank raised interest rates by a total 375 basis points since early 2010, but is now expected to focus on slowing growth at its policy review on January 24.

COMMENTARY:

SONAL VARMA, ECONOMIST, NOMURA FINANCIAL ADVISORY & SECURITIES, MUMBAI

"The headline inflation has come down because of food inflation easing and due to a positive base effect, but the manufacturing momentum is strong. So, from the RBI's perspective, core inflation is still elevated, and so we are not expecting any rate move from the central bank on January 24.

"We expect liquidity to remain tight and expect the RBI to continue to do open market operations till inflation comes down and there is room for a CRR cut.

"The inflation rate should be around 7 percent by March because base effect is extremely positive, and with growth slowing down, we do expect some moderation on the demand side."

RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE

"While the role of base effects in this softer inflation print cannot be discounted, it's heartening for the authorities to see inflation ease below 9 percent for the first time since November 2010. Barring any commodity price shocks due to geopolitical tensions, we expect the headline to gradually ease hereon, possibly below 7 percent by the end of FY12.

"Signs of resilience in the core inflation gauge however will prevent the RBI from kick starting the rate cutting cycle this month, with first of the cuts in the repo rate likely early in the second quarter of 2012."

A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI

"Core inflation is higher, so this rules out RBI action on repo rate in the January 24 policy review.

"I would still think there is a case for CRR cut because of tight liquidity and the scale of liquidity infusion required, but since the RBI has used CRR as a monetary measure, the probability of CRR cut has also reduced after this data."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"The core inflation at 7.5 percent is very high and above the RBI's comfort zone. Unless it comes down to 6.5 percent, I don't think the RBI will start cutting interest rates or the cash reserve ratio.

ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI

"The WPI print is much in line with expectation and shows that elevated base effect in food prices has finally pulled down inflation below the 8 percent mark for the first time in last 24 months.

"However, the upward exertion by weaker rupee on manufactured products prices is apparent. Though on a year-on-year basis, manufactured products inflation has come off to 7.41 percent versus 7.70 percent previously, the month-on-month change in the index is pretty high.

"Overall, with the recent WPI and IIP print we do not expect

any repo rate reduction by the RBI on January 24. However, we expect a CRR reduction by 50 bps.

ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI

"We seem to be on track to get to 7 percent or lower inflation rate by March unless there is a reversal in the international commodity price situation. There is a risk of that happening if the ECB embarks on the quantitative easing programme. But, that's a minor risk.

"I am looking at a CRR cut in the monetary policy on January 24 but the RBI will wait to see whether the drop in inflation is sustained before they cut the repo rate.

"Open market operations can continue but that only help in the margins. It's time to make a policy gesture and give some comfort to the bond market."

MARKET REACTION:

The main 30-share BSE index extended losses and was down 0.6 percent, while the rupee was little changed at

51.65/66 to the dollar.

The benchmark 10-year bond yield rose 4 basis points to 8.19 percent.

BACKGROUND:

- The Reserve Bank of India (:RBIRBInull) is expected to focus on supporting slowing growth in its next policy review on January 24.

- Last week, Prime Minister Manmohan Singh said the economy is expected to grow at about 7 percent this fiscal year to end-March, lower than a downwardly revised forecast of around 7.5 percent and compared with 8.5 percent rise in the previous year.

- Industrial output recovered in November, providing a glimmer of optimism for a battered economy and giving the RBI room to hold off on easing monetary policy after two years of tightening.

- Production at factories, mines and utilities grew 5.9 percent from a year earlier in November, the fastest clip since June.

- India's food price index dropped 2.90 percent in the year to December 31, and is likely to remain low in the next few weeks on expectation of higher grains production.

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