Rate cut hopes rise as inflation eases Inflation Near 3-Yr Low Of 6.87% | Shipments Fall | Finmin Pinches Pennies

New Delhi: Inflation eased to a nearly three-year low in July, fuelling expectations that RBI will cut interest rates to bolster faltering growth but the data showed pressure points still remained with food inflation in double digits for the fifth consecutive month.      Data released by the commerce and industry ministry on Tuesday showed the annual rate of inflation, based on monthly wholesale price index, stood at 6.87% for July, compared to 7.25% for the previous month and 9.36% during the corresponding month of the previous year.      A closer look at the July numbers showed that the overall inflation scenario still remained way above the RBI's comfort level with manufactured non-food product inflation inching up and food prices remaining stubborn. The inflation number for May remained unchanged at 7.55% which marked a departure from the sharp upward revisions in the previous months.      Economists say deficient monsoon rains and rising global crude prices are expected to accelerate price pressures in the months ahead. Food inflation was 10.06% in July, lower than the previous month's 10.81% but still in double digits with pulses, vegetables, milk, egg meat and fish prices still under pressure. Prices of pulses rose an annual 28.26% in July compared to 26.48% increase in the previous month, while vegetable prices rose an annual 24.11%, slower than the previous months 48.84% increase.      "The inflation numbers surprised positively with the July print coming in at 6.87%, lower than ours and consensus estimates of 7.2%. The surprise was largely due to the fuel price base effect where the fuel index declined -1.5% on a month-on-month basis," Rohini Malkani, economist at Citigroup India, said in a report.      "Nonetheless, despite inflation likely to remain well above the RBI's mediumterm target of 4%-5%, we are holding on to our 50 basis points s rate cut call in FY13 due to the deceleration in growth (as seen in factory output, auto sales, exports)," Malkani said.      Expectations of an interest rate cut have gathered pace in recent weeks after a disappointing industrial output data which showed a sharp decline — the third in four months. Finance minister P Chidambaram's comments that interest rates are high and the government will take steps to ease the burden have also added to expectations. But RBI is still worried about the inflationary pressures in Asia's third-largest economy. Governor D Subbarao said on Monday that inflation remained "above our tolerance level". But some experts say slowing growth, sliding exports and industrial output and overall gloomy outlook may prompt the central bank to ease rates. But lack of progress on repairing government finances and subsidies may make it difficult for RBI to cut interest rates.