Inflation, as measured by the wholesale prices index, declined sharply by 1.74 per cent for the week ending November one from 10.72 per cent in the previous week, a development that may prompt RBI to ease money supply further to spur economic growth in an election year.

The highest ever decline in the last many months is mainly on account of cheaper fuel items like naphtha, jet fuel, furnace oil and light diesel oil as a result of falling global crude prices, which is trading at 20 months low at 56.16 dollars from 145 dollars a barrel in July.

Inflation had shot up to a 13-year high of 11.05 per cent fuelled by administered hike in prices of petrol, diesel and cooking gas for the first week of June from 8.75 per cent.

Some manufactured items like metals (iron and steel, zinc, lead) also turned less expensive because of less demand on account of global meltdown.

"We see inflation at 5.5-6 per cent by March. RBI can now more aggressively cut rates. I expect 100 basis points repo rate cut this year. There could also be a reverse repo rate cut of 50 basis points," said Crisil Principal Economist D K Joshi.

Yes Bank Chief Economist Subhada Rao expected measures to inject liquidity as well as nudge interest rate lower in the near term as inflation concerns rapidly recedes. "I expect repo rate cut of 50 bps in the near term. There could also be a possibility of 25 bps cut in the reverse repo as well."