India's wholesale price index, the most widely watched inflation measure, rose 6.38 per cent in the 12 months to Dec. 20, slower than 6.61 per cent in the previous week and exactly matching a Reuters poll.

This was India's lowest reading since March 1, and inflation has now more than halved from August's peak of 12.91 per cent.

"I expect inflation to fall to 5-5.5 per cent in the coming weeks and further down to 1.5-2 per cent by March-end," said Anubhuti Sahay, economist at Standard Chartered Bank.

"We expect the central bank to cut repo and reverse repo rates by 100 basis points on or before its January policy meet," she said.

After slashing rates since mid-October, the central bank's key lending rate, the repo, now stands at 6.5 per cent and the reverse repo rate, at which it absorbs cash from the market, is at 5.0 per cent. The Reserve Bank of India's next policy review is on Jan. 27, and most analysts expect it to again trim interest rates sharply to support an economy slowing faster than many experts had predicted.

Inflation is well within the central bank's forecast of around 7 per cent for 2008/09.

Financial markets were little moved as the data met expectations. The partially convertible rupee rose slightly to be at 48.69/71 per dollar, from 48.73/75 just before the data, while the 10-year bond yield was unchanged at 5.22 per cent.

India's $1 trillion economy, Asia's third-biggest, has shown palpable signs of slowing amid the global financial crisis and high borrowing costs at home, after growing at 9 per cent or above for the past three years.