Led by fall in prices of pulses and some food articles, inflation rate has declined to a five-year low of 3.26 per cent for the week ended September 29, compared to 3.42 per cent in the previous week.

The fall in inflation rate coupled with rise in industrial production by 10.7 per cent in August, have fuelled expectations that Reserve Bank could reduce interest rates in its half-yearly monetary review on October 30.

"Fall in inflation rate is a very encouraging development. Now we can safely call for reduction in interest rate to bring about a multiplier effect on growth and employment," FICCI Secretary General Amit Mitra said.

The annual rate of inflation stood at 5.41 per cent a year-ago. However, bankers are doubtful whether RBI would soften its stand on interest rates due to rising inflow of forex, crossing $16 billion so far in 2007, and high international crude oil prices.

The prices of pulses like moong and urad declined by 1 per cent during the week besides tea prices, which declined by 4 per cent and edible oils (0.1 per cent) also helped to bring down the inflation rate.

The prices of vegetables, however, rose by 0.6 per cent, and fruit and milk prices remained unchanged during the week.

The index of fuel, power, light and lubricants which have weight of 14.23 per cent in WPI remained unaltered at its previous week's level of 322.

Manufactured products, which have a weight of 63.75 per cent in WPI, rose marginally by 0.1 per cent during the week.