A fall in some food and manufactured items pulled down inflation to a new five-year low of 3.23 per cent for the week ended September 15, but analysts said the RBI is unlikely to cut interest rates at its policy review next month.
The inflation rate, based on wholesale prices, declined as fruits, sugar, egg, fish meat, and a few manufactured items became cheaper. The rate stood at 3.32 per cent in the previous week and 5.27 per cent in the corresponding week a year ago, according to official figures released on Friday.
"Inflation is likely to remain around 3.5 per cent till December despite concerns of excessive rainfall in some parts of the country affecting kharif production, and high crude oil prices," HDFC Bank chief economist Abheek Barua said.
He said the Reserve Bank, which will announce monetary policy review on October 30, is likely to keep a neutral stance as far as interest rates were concerned but may raise cash reserve ratio. "Anything at this stage is unwarranted."
Crisil principal economist D K Joshi also said RBI may not tinker with key interest rates. The policy stance would be dictated by IIP data of August and September and fuel prices.
The government has not allowed state-run firms to raise fuel prices inspite of record high crude oil prices in the international markets due to political opposition.
Finance Minister P Chidambaram had on Thursday cautioned that rising prices of food and oil in global markets could lead to an increase in domestic rates and impact the economy.
According to official figures, prices of items like paints have gone up by 6 per cent during a week with the onset of festival season. Prices of cotton seed oil (4 per cent), poultry chicken (5 per cent), mutton (2 per cent) also rose.