MUMBAI—Indian shares rose on Wednesday after data showed inflation eased to a five-month low in December, raising hopes that the central bank won't raise interest rates at its next monetary policy review later this month. 

The Bombay Stock Exchange's S&P BSE Sensex index closed 1.2% higher at 21,289.49 points while The National Stock Exchange's 50-share Nifty index closed up 1.3% at 6320.90 points.

Government data showed the wholesale price index, the country's main inflation gauge, rose 6.16% on year, slower than November's 7.52% increase. The reading was well below market expectations for a 6.90% increase, according to the median estimate in a poll of 17 economists by The Wall Street Journal. 

The Reserve Bank of India had surprised markets by leaving interest rates unchanged at its last rate-setting meeting in December despite a sharp rise in inflation. It had said that it expected inflation to ease. 

The combination of easing inflation and two consecutive months of fall in factory output through November makes it less likely that the central bank will raise rates at its next meeting on January 28, traders said. 

Shares worth 18.61 billion rupees changed hands on the BSE cash market, higher than Tuesday's 16.86 billion rupees. 

Twenty nine of the 30 Sensex constituents rose while the remaining stock was unchanged from its previous close. 

Banks stocks, which are sensitive to changes in interest rates, gained. ICICI Bank, India's largest private-sector bank, rose 2.0% to 1058.35 rupees while HDFC Bank added 1.2% to 680.35 rupees.

Software stocks continued their good run, with Wipro gaining 1.3% to 560.10 rupees and Tata Consultancy Services rising 1.1% to 2354.25 rupees. 

In the currency market, the rupee was trading at 61.54 against the U.S. dollar in late afternoon trade, almost unchanged from Monday's close of 61.52. 

Indian currency markets were shut for a religious holiday on Tuesday.