India inflation sub-5 pct for first time in 10 months

India's annual inflation rate fell below 5 percent for the first time in 10 months at the end of May, data showed on Friday, but analysts said the unexpectedly sharp fall was unlikely to prompt a change in monetary policy.

The widely tracked wholesale price index rose 4.85 percent in the 12 months to May 26, slowing from 5.06 percent a week earlier and well below a two-year high of 6.69 percent in late January.

It was the lowest rate since the end of July last year, and was also lower than a median forecast of 5.05 percent in a Reuters poll of analysts.

"If everything remains unchanged, inflation could comfortably hover around 5 percent during July-August," said Saumitra Chaudhuri, economic adviser at domestic credit rating agency ICRA.

"I don't see any need for a cut or increase in interest rates at this moment."

The 10-year government bond yield edged down to 8.13 percent from 8.14 percent before the data, while the partially convertible rupee was unchanged at 40.96/97 per dollar.

The Indian economy, Asia's third-largest, grew 9.4 percent in the fiscal year that ended March, its fastest rate in 18 years and second only to China among major global economies.

The central bank aims to keep inflation close to 5 percent this fiscal year to March 31, 2008, and bring it down to 4.0-4.5 percent over the medium term.

It has raised interest rates five times since last June and raised banks' reserve requirements three times since December to rein in inflation and credit growth. It held rates steady at a policy review in April, but said it would act swiftly if needed.

The government has cut petrol and diesel prices to help tame inflation. It has cut import duty on cement, capital goods, steel, aluminium, copper and other industrial raw materials, as well as palm and sunflower oil and a string of other products.

The wholesale price index is more closely watched in India than the consumer price index, which is published monthly, because it covers a higher number of products and is published weekly.