Inflation falls to 7-month low; stocks rally on rate cut hopes

New Delhi, Dec 4 (PTI) Inflation fell to its lowest in nearly seven months to 8.40 percent, giving Reserve Bank of India (RBI) enough room for deeper rate cuts to propel the economy -- expectations of which fostered a strong rally in the equities market Thursday.

The rate, measured by wholesale prices, eased for the
fourth straight week and was lower by 0.44 percentage points
in the seven-day period ending November 22 from the previous
week.

However, inflation for food articles grew by 10.43
percent from 9.93 percent a week ago. Items like coffee, sea
fish, masur, rice, eggs, arhar, fruits, vegetables and gram
cost more in the week under review.

A sharp fall in global crude prices, which had touched a
high of USD 147 a barrel in July and is now ruling near USD
45, and duty cuts on ATF (jet fuel) led to a huge decline in
prices of industrial fuels in India.

The drop in inflation numbers will make it easier for RBI
to cut key short-term rates - possibly this weekend when the
government is expected to unveil a stimulus package for the
housing, auto and export sectors.

The stock market rallied on these expectations and
advanced by 482 points to close above the 9,200-points mark.

Crisil Principal Economist D K Joshi said, "Inflation
has fallen sharply than our expectations, led by fuel group
and manufactured goods prices. This gives RBI more leeway for
interest rate cut and I expect agrressive reduction in both
repo and reverse repo rate soon." PTI IND
DEP