India's wholesale inflation cooled to its weakest pace in 10 months in November, a sign the economy may finally be escaping a long period of price pressure and raising the chances of a rate cut in January. The wholesale price index (WPI), India's main inflation gauge, rose 7.24 percent from a year earlier, below expectations for a rise of 7.6 percent and below October's 7.45 percent. An easing in annual fuel and manufacturing inflation helped rein in price pressures.

The Reserve Bank of India (RBI) holds its next policy meeting on Tuesday but has said a rate cut is "highly improbable." The tilt toward a period of softer inflation though is raising expectations the central bank might cut its 8 percent repo rate in January. "The probability of a rate reduction in the month of January has now gone up," said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.

November was the second straight month that prices rose less than economists had forecast, which Robert Prior-Wandesforde, economist with Credit Suisse in Singapore described as a "pleasant surprise". India's 1-year overnight index swap fell around 3 basis points after Friday's data.

Cooling prices are welcome news for Prime Minister Manmohan Singh, a veteran economist who has launched a raft of reforms since September aimed at reviving both the economy and his government's flagging fortunes ahead of a general election. "Our expectation is it will trend downwards over the next 2-3 months," Singh's finance minister, P. Chidambaram, said. September inflation was revised up to 8.07 percent from 7.81 percent reported earlier, Friday's data showed.

Copyright Reuters, 2012