NEW DELHI/MUMBAI, April 16: India said on Monday that inflation had slightly eased in March, a day before what is forecast to be the first interest rate cut in three years, but a cautious tone from the central bank added to expectations that monetary policy change will be gradual.

The wholesale price index (WPI), India’s main inflation indicator, rose an annual 6.89 per cent in March, higher than the 6.70 per cent rise estimated by analysts, as manufacturing inflation eased even as food inflation shot up.

But it was still below Feb-ruary’s 6.95 per cent reading.

The Reserve Bank of India (RBI) said inflation was likely to remain near current levels during the fiscal year that started this month, with upward pressure persisting.

“While inflation has moderated, risks to inflation are still on the upside,” the bank said in a report, a day before it is due to release its annual policy statement.

The central bank’s nearly two-year battle against high inflation, coupled with a political logjam in New Delhi and an uncertain global economy, is expected to have slowed India’s economic growth to a three-year low of 6.9 per cent in the fiscal year that ended on March 31.

“A rising current account deficit, suppressed inflation and the structural nature of the fiscal deficit suggest that it will be a shallow rate cutting cycle,” said Sonal Varma, an economist at Nomura in Mumbai, who expects a total of 75 basis points in policy repo rate cuts in 2012.

The RBI is widely expected to cut its main lending rate, the repo rate, by 25 basis points to 8.25 per cent on Tuesday, though economists have been paring back their rate cut forecasts for the year amid worries about high commodity prices and a heavy fiscal deficit.

The RBI has already cut the cash reserve ratio, the share of deposits banks must maintain with the central bank, by 125 basis points in two moves since late January to 4.75 per cent, making more money available for lending.

Mixed Bag Manufacturing goods inflation, a barometer for demand-driven price pressures, dropped to 4.87 per cent from 5.75 per cent in February, giving solace to investors who have long sought a rate cut. However, the annual WPI reading for January was revised up to 6.89 per cent from 6.55 per cent, the government said.—Reuters