* Retail prices up 3.41 pct y/y in Dec vs 3.63 pct in Nov
* December inflation reading lowest since November 2014
* Industrial output in November expands at fastest pace in
* Cooling inflation boosts rate cut hope
* Feb budget, crude prices seen influencing RBI's decision
(Adds details, analyst quotes)
NEW DELHI, Jan 12 (Reuters) - India's retail inflation hit a
two-year low in December as businesses resorted to price
discounting to boost flagging sales following the government's
cash crackdown, fuelling hopes of an interest rate cut by the
Consumer prices rose by an annual 3.41 percent
last month, their slowest pace since November 2014, government
data showed on Thursday. Economists surveyed by Reuters had
expected prices to rise 3.57 percent year on year, compared with
a 3.63 percent gain in November.
Annual retail food inflation eased to 1.37 percent last
month from a revised 2.03 percent in November, helped by lower
prices of vegetables and pulses.
With headline inflation averaging under 4 percent in the
past three months, way below the Reserve Bank of India's (RBI) 5
percent target for March 2017, the central bank has room to cut
rates at its next meeting on Feb. 8.
"Today's reading should give comfort to the RBI to cut
policy rates further and help speed up the economic recovery in
2017," said Tushar Arora, senior economist, HDFC Bank.
However, much will depend on the upcoming federal budget and
the outlook for global crude prices.
Finance Minister Arun Jaitley is under pressure to ramp up
capital and welfare spending as well as rationalise income tax
rates in the federal budget on Feb. 1 to mitigate the pain
caused by Prime Minister Narendra Modi's shock decision in last
November to scrap 500- and 1,000-rupee banknotes.
While industrial production expanded by 5.7
percent in November from a year ago, its fastest pace in 13
months, the figure was propped up by a favourable statistical
New Delhi has forecast growth of 7.1 percent in the year
through March 2017, the slowest pace in three years, but the
official estimate doesn't fully account for the demonetisation
A severe cash shortage led to the biggest monthly fall in
automobile sales in 16 years in December. The slump coincided
with a contraction in services industry and manufacturing
The fiscal stimulus could make it tougher for Jaitley to
stick to the committed fiscal consolidation roadmap in the new
financial year, limiting the RBI's room for monetary easing.
The central bank would be equally worried about a pickup in
global crude prices, which are up nearly 18 percent since
"There are lots of uncertainties over global commodity
prices ... all of which could pose some upside risks to
inflation," said A. Prasanna, economist, ICICI Securities
Primary Dealership Ltd.
(Reporting by Rajesh Kumar Singh; Editing by Sanjeev Miglani)