Indian Finance Minister Pranab Mukherjee admitted that the country's inflation rate is still at a high and hopes that it could lower in March.

"It is still high, but that would suffice for now. We hope though that it will register lower in March," said the finance minister on the official headline inflation of India that was released on Tuesday.

India's benchmark wholesale price index (WPI) eased to 6.55 per cent in January, compared with 7.47 percent in December, the country's commerce ministry said in a statement. January's fall was the country's lowest level in more than two years.

"I think it should reduce further...it is still not at an acceptable level. I do hope (further) moderation will come," Mr Mukherjee said in New Delhi on Tuesday. He admitted government expects a further reduction in the coming months.

"By March, it should be down to about 6 per cent," he said.

The WPI is the most widely watched gauge of prices. The January record, according to the commerce ministry, resulted from a decline in the rate of price rise in manufactured and food products.

Consequently, Indian bonds closed higher on Tuesday. The benchmark 8.79 per cent 2021 bond ended at INR104.02, up from Monday's INR103.82, according to data gathered by The Wall Street Journal.

Analysts and traders hoped the inflation downtrend will indeed sustain in the coming months in order to encourage the Reserve Bank of India to start cutting interest rates.

"The trend is in the right direction and on the whole the environment is conducive to further changes in policy but the exact instrument the RBI will use will depend upon other factors and therefore one cannot say very clearly which instrument will be used. But basically the environment in terms of the price behaviour has considerably changed for the better," C. Rangarajan, chairman of Prime Minister Manmohan Singh's Economic Advisory Council, told CNBC-TV18.

The government may consider reviewing diesel prices once inflation moderates to comfortable levels, he added.

Last month, India's central bank said it is ready to lower rates provided the country's inflation goes down, and sustains that deceleration in the next months. There is now an increasing pressure on the government to protect growth after it said the economy may expand by the least in the next three years.

Government estimates earlier this month forecast India's gross domestic product may climb 6.9 per cent in the 12 months through March from a year earlier, the least since 2008-2009. The economy has grown 8.4 per cent in the last two years.