Inflation fell to 11.07 per cent on cheaper food and crude but the government said it was still high, even as the RBI is expected to increase money supply in the system.

Four straight weeks of slow growth in prices may prompt RBI to cut benchmark rates when it reviews the mid-term credit policy tomorrow, analysts said.

The wholesale prices based inflation declined by 0.36 per cent for the week ended October 11, mainly driven by lower prices of fruits and vegetables, pulses, spices, some petroleum and manufactured products. It was 11.44 per cent in the previous week.

"Inflation is still high, but what is happening now - moderation in crude and commodity prices - will have an impact on consumer prices as well," Finance Minister P Chidambaram told reporters in New Delhi.

Department of Economic Affairs Secretary Ashok Chawla said inflation was expected to come down to 9.5 to 10 per cent by December end.

Inflation of 30 essential commodities declined to 7.81 per cent as on the week ending October 11 from 7.88 per cent reported in the earlier week, a statement from the Finance Ministry said.

There was a decline in the prices of seven of these commodities and prices of other 16 commodities remained unchanged, it added.

Repo rate cut

According to analysts, RBI may further cut repo (short-term lending) rate or Statutory Liquidity Ratio (percentage of deposits banks are required to invest in the government securities).

"In this scenario, it is possible that the RBI may cut SLR by 100 basis points," Crisil Principle Economist D K Joshi said.

Inflation figure came three days after RBI announced cut in repo rate by 100 basis points to 8 per cent signaling softening of interest rates.

Besides, RBI has taken a series of the liquidity infusion measures including slashing Cash Reserve Ratio by 250 basis points thereby unlocking about Rs 1,00,000 crore in the cash- starved banking system.

The only concern going forward remains the declining Rupee, Joshi said, adding, it would make import costlier.

Rupee hits all-time low of 49.68 against US dollar in early trade on Thursday.

However, government feels that the declining trend in inflation is expected to continue.

Finance Minister P Chidambaram in a reply to Lok Sabha had said, "it is expected that the declining trend would continue in the coming months."

During the week, prices of fruits and vegetables, urad and eggs declined by two per cent each, while bajra spices fell by one per cent each. However, tea was expensive by 7 per cent, rice and masur by one per cent each.

At the same time raw rubber prices fell by 19 per cent, sunflower by 5 per cent and minerals like barites slipped by 11 per cent while iron ore prices softened by two per cent.

Among fuel group, prices of furnace oil by two per cent pulling down the group index by 0.1 per cent.

In the manufactured products category, imported edible oil was cheaper by 7 per cent, oil cakes and cotton seed oil by 5 per cent.