Updated April 16, 2012 4:02 a.m. ET
NEW DELHI -- Inflation in India slowed slightly in March as prices of manufactured products cooled, supporting expectations that the central bank will finally start cutting its policy rate to attend a deepening growth crisis in the economy.
The wholesale price index rose 6.89% in March from a year earlier, compared with February's 6.95% increase, government data showed Monday.
The reading was higher than the 6.65% median estimate in a poll of 17 economists. But the above-forecast data did little to change expectations of a rate cut by the Reserve Bank of India when it reviews monetary policy Tuesday.
Bond prices rose slightly after the data with the benchmark 8.79% 2021 gaining to 102.26 rupees compared with 102.19 rupees before the data.
Easing inflation and economy's growth crisis have increased pressure on the central bank to shift its hawkish gaze on inflation and focus on supporting growth. The government's intent to resume fiscal consolidation would give the RBI further confidence to begin easing monetary policy, likely starting with a quarter-percentage-point cut this week.
Nitesh Ranjan, an economist at Union Bank of India, said the RBI may likely lower the lending rate by 0.75 percentage point by July, beginning with a 0.25-percentage-point cut Tuesday.
"The manufactured products inflation is the major worry," Mr. Ranjan said. "If that comes under control, the RBI should have more space."
Monday's data show the index for manufactured products rose 4.87% from a year earlier in March, compared with a 5.75% rise in February. Manufactured products have a 65% weight in the index.
The RBI ratcheted up interest rates over the past two years and left them unchanged at the past three policy reviews awaiting government steps to control spending that had been diluting its monetary stance.
The rate increases, however, did help slow inflation modestly in the last quarter after it stayed above 9% for several months running. The slowdown was led by easing food prices as well as prices of manufactured products.
However, the risk of a fresh spike in prices still remains due to steadily climbing crude oil prices and a statistical base of comparison that could turn unfavorable from around June.
India imports more than three-fourths of its oil needs, making it vulnerable to changes in global crude oil prices.
Write to Anant Vijay Kala at firstname.lastname@example.org