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. "I don't think the RBI will be in a position to reduce policy rates on Dec. 18," said Rupa Rege Nitsure of Mumbai's Bank of Baroda. "But, the probability of a rate reduction in the month of January has now gone up."
India's 1-year overnight index swap fell around 3 basis points after Friday's data.
The inflation data comes after a spike in industrial outputin October and data indicating that infrastructure output and investment is picking up, raising hopes a long slide in India's economic growth is coming to an end.
However, the economy is still headed for the weakest full-year growth in a decade, at about 6 percent, far below the near double-digit pace before the global financial crisis.
The Reserve Bank of India (RBI) has not lowered interest rates since April because inflation has remained near 7 percent, exacerbated by a weak rupee that has added to the cost of fuel imports.
The central bank has said any interest rate cut is "highly improbable" at the policy meeting on Tuesday. But given the sharply lower number, some analysts now see an outside chance the bank will change its mind.
"Given the food and manufacturing prices are much better behaved than what many private analysts had predicted, we expect inflation by March-end to be sub-7 percent," said A Prasanna, an economist at ICICI Securities in Mumbai.
"There is nothing that should stop them from cutting rates in December," Prasanna said.
Rating agency Standard & Poor's warned again on Tuesday that India's credit rating faces a one-in-three chance of being downgraded to junk over next 24 months because of a heavy debt burden and pressure on the fiscal deficit, which is seen overshooting a target of 5.3 percent in the fiscal year ending in March.