India's wholesale price inflation on an easing streak

This could encourage rate cuts this week.

"In a welcome sign, India’s wholesale price inflation eased for the second consecutive month in November to 7.2% y/y from 7.5% in October (Consensus 7.6%; see our India Flash for details)," said BBVA in its latest Asia Daily Flash report.

"The positive outturn was driven by a substantial softening in core inflation along with some let up in fuel prices, which offset a pick up in food inflation. Base effects, lower raw material prices and easing demand dragged core inflation to its lowest since March 2010. Looking ahead, near term upside risks to WPI inflation stem from a low base coupled with food price pressures, but we expect weak growth and favorable commodity and currency trends to contain them," BBVA added.

"Continued downtrend in the benchmark WPI inflation leaves more room for the Reserve Bank of India to consider cutting rates at its December 18th meeting. However, with retail inflation still near double digits, we expect the RBI to keep rates unchanged next week while cutting the cash reserve ratio by 25 bps to signal an easing bias and address tight liquidity conditions," it said further.

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