After declining for ten consecutive weeks, inflation rose to 5.6% for the week ended January 10, from 5.24%, as the oil and truckers strikes pushed up prices of various commodities including vegetables and manufactured items. The Reserve Bank of India is now expected to cut interest rates at its monetary policy review meeting on Tuesday as inflation is far below its comfort zone of 7% by fiscal end.

However, the finance ministry and some analysts expect it to hold onto the policy rates after being aggressive in the recent months. Also, the liquidity conditions have remained benign in recent weeks, as banks constricted lending and parked funds at safer windows including government securities and RBI reverse repo facility.

Banks deposited Rs 56,710 with RBI at 4% reverse repo rate just on Thursday, indicating that funds are ample. While this reduces the chances for a further cut in the cash reserve ratio, a reduction in the reverse repo rate, which would discourage banks to park funds with RBI, cannot be completely ruled out.

Inflation may rise a bit in the next week before continuing the downward march in the coming weeks, analysts said. Department of economic affairs secretary Ashok Chawla has said he expects inflation to be 3-4% by March, while many economists forecast it to fall to around 2%. Truckers went on an eight-day strike from January 6 that had nudged up prices of commodities and disrupted supplies of industrial goods.

Axis Bank economist Saugata Bhattacharya said the rise in inflation is temporary and probably happened due to the truckers? strike. ?But I see it as a temporary blip. In the coming days, inflation would fall, though it may rise next week also due to the spillover effect of the strike. I expect no rate cut by the RBI in its policy review,? he added.

The RBI?s short term lending rate, the repo, stands at an 8-year low of 5.5%, while the reverse repo, the rate at which the central bank absorbs funds from the market, has been cut by 200 basis points to 4% since early December.

Financial markets remained largely cool to the data with the yield on 10-year government bond steady at 5.81% and rupee mostly unchanged at 49.13/16 a dollar on Thursday. For the third successive week, provisional inflation data was revised downwards, indicating that that inflation has been falling than projected in initial figures. Inflation for the week to November 15 was lowered to 8.66% from the provisional 8.84%. Inflation stood at 4.36% during the corresponding week of previous year.

The rise in inflation is ?largely attributable to the impact of the oil and transport sector strikes,? the finance ministry said in a statement on Thursday. Pace of price rise of commodities increased across groups. Primary articles inflation rose to 11.6% from 10.9%. In the food articles sub-group, after declining to single digit levels in the last fortnight, inflation rose to 11.6% in the January 10 week from 9.5% in the previous week, largely due to higher inflation in vegetables and milk, the ministry said. Non-food articles? inflation declined to 7.1% from 9.6%, while minerals? inflation rose to 41% from 40% due to higher inflation in non-metallic minerals as limestone and felspar.

Fuel and power group prices fell by 1.3%. Manufactured goods? pace of price rise increased to 5.9% from 5.6%. ?While most sub-groups recorded stable or declining rates of inflation, the sub-groups of sugar, khandsari and gur, textiles and canned/processed fish showed increase,? the finance ministry said. For the combined food index, having a weight of 25.43% in wholesale price index, inflation rose to 9.5% from 7.9%.

Among commodities whose prices increased the most, vegetables turned expensive by 18.4% and processed fish, including the canned variety, by 42.8%. However, prices of sea fish, paper items, rubber products and chemicals.