Declining inflation will provide more flexibility to the Reserve Bank to ease tight monetary

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stance for stimulating economic growth, said Planning Commission Deputy Chairman Montek Singh Ahluwalia.

"..People were earlier saying inflation was a big problem and was the reason for tightening of monetary policy. Now (with easing of inflation) RBI will have more flexibility for stimulating Gross Domestic Product (GDP) growth," Ahluwalia told reporters here.

Headline inflation fell to a two-year low of 7.47 per cent in December 2011 on cheaper food items, a factor which may prompt RBI to cut policy rates in the upcoming review on January 24.

Inflation, as measured by Wholesale Price Index (WPI), had stood at 9.11 per cent in November. It was 9.45 per cent in the December 2010.

The inflation has been above the 8 per cent mark since January 2010, while it has remained above 9 per cent since December of the same year.

The apex bank has hiked key policy rates 13 times since March, 2010, to tame inflation.

RBI has, however, paused rate hikes since November and has hinted that it may start easing its tight monetary policy if inflation falls. It had projected inflation to fall to 7 per cent by March this year.

India Inc has said the string of rate hikes, which have raised the cost of borrowing, have acted as a dampener to fresh investment and hindered growth.

The economic growth in July-September period of 2011-12 stood at 6.9 per cent, the lowest in over two years.

Ahluwalia said there was some pressure on inflation but it would further come down by March.