New Delhi : India’s wholesale price inflation eased to its lowest level in nearly five years in August, but the Reserve Bank of India (RBI) is likely to keep interest rates on hold later in September to prevent a revival in price pressures once the economy gains momentum.

The Wholesale Price Index (WPI) rose 3.74% year-on-year in August, helped to its slowest pace since October 2009 by a favourable statistical base and falling global crude oil prices, which dropped to a two-year low on Monday.

A Reuters poll of economists had expected annual WPI inflation of 4.50% in August.

This is the last major economic data before RBI’s policy review on 30 September.

Data released on Friday had shown consumer price inflation, which the central bank tracks to set policy lending rates, edged down marginally to 7.8% in August.

RBI wants to reduce retail inflation to 6% by 2016. The central bank left the repo interest rate steady at 8.0% last month and is widely expected to do the same at its upcoming policy review to ensure sustained disinflation in 2015.

“Retail inflation is the main barometer for policy decisions and unless that tapers off towards the January 2016 target at 6%, rate cuts are unlikely to be in the picture," said Radhika Rao, economist at DBS bank in Singapore.

“We maintain that the repo rate will be held unchanged for the rest of the year to ensure recovery in growth does not disrupt the disinflationary trend."

Improved rainfall in recent weeks should help to moderate food price pressures, lower global oil prices and the favourable statistical base should help lower inflation, but there were counter-forces to consider.

Aside from prospects of a pick-up in domestic consumption stoking price pressures, there was also the possibility that imported goods could become more expensive if the rupee weakens against the dollar, due to expectations that the US Federal Reserve could raise interest rates sooner-than-expected.

Wholesale prices for fuel rose an annual 4.54% in August, sharply slower than a 7.4% year-on-year gain in July.

RBI chief Raghuram Rajan has said falling oil prices could be a “temporary phenomenon", and there are risks that prices could flare up again due to geopolitical tensions in the Middle East or Ukraine.

Food inflation, meanwhile, eased to 5.15% in August from 8.43% in the previous month. However, the prices were up 2.6% from July.

“While all the current set of economic indicators indicate that inflation is heading lower, Rajan wants to temper expectations and highlight the possibility that prices may still go up in the future," said Killol Pandya, senior fund manager, debt at LIC Nomura asset management.

“We believe the central bank will wait for a couple of more prints before it definitively makes up its mind about the direction of inflation."

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