With improvement in food price situation, Indian Prime Minister's economic advisory panel on Thursday favoured rate cuts by the Reserve Bank and hoped headline inflation, too, will fall below the projected 7 per cent by March- end.

The Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said that the economic growth forecast for the current fiscal would be around 7 per cent.

"I expect headline inflation could come down even below 7 per cent by March-end," he told reporters on the sidelines of a Skoch event here.

As per official data, food inflation for the week ended December 24 turned negative to (-) 3.36 per cent. The headline inflation numbers for December would be available next week.

"It (the decline in food inflation) was in many ways expected because last year in December and January vegetable prices rose to an abnormally high level," he said, adding that the numbers would decline in the coming months as well.

The Reserve Bank and government has already projected headline inflation to be around 7 per cent by March end.

The figure stood at 9.11 per cent in November.

Rangarajan said RBI has already given indication in its previous monetary policy that it would pause the interest rate hike cycle. The RBI has already hiked interest rates 13 times since March 2010 to control inflation.

"We have to wait for December inflation figures to see if the non-food manufacturing numbers have also followed the same path. The December numbers will indicate when and how RBI will act," he said.

Rangarajan also made a case for reduction of the interest rates by the RBI in its monetary policy review later in the month. "The environment appears to be in favour of the Reserve Bank reversing its monetary policy stance," he said.

The central bank is scheduled to announce next policy review on January 24.

On fiscal deficit, Rangarajan said, the numbers are expected to breach the budgeted level of 4.6 per cent in the current fiscal by one percentage point.

"It is going to be very difficult to contain fiscal deficit at the budgeted level. All efforts will be made to ensure that the fiscal deficit does not exceed by a large margin," Rangarajan said.

The government's fiscal deficit has risen to Rs 3.53 lakh crore, or 85 per cent of the Budget estimates, in the April-November period of 2011-12.

The rise in fiscal deficit is mainly on account of lower mobilisation of non-tax revenue compared to same period last year when it had mobilised over Rs 1.08 lakh crore on account of 3G and BWA spectrum auctioning.

With only three months of the fiscal left, the government has been able to mop up only Rs 1,145 crore. It planned to raise Rs 40,000 crore through stake sale in public sector entities.