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The fall in inflation across the world and in India have given much needed breathing room for the RBI. We must recall, the RBI remained skeptical about inflation (understandably cautious) in the previous policy meeting. Further, the change to target rate from band implies that RBI has further clarity on inflation. Keeping these facets in mind, we continue to opine, rates have largely peaked. We believe the actions of the RBI are prudent. Our estimates on growth remain lower than those of the RBI factoring base effects, more neutral view on rural consumption trends and impact on exports due to global slowdown. We expect growth projections lower than RBI expectations.

Two risks that would require the RBI to change tact.

• US Fed raises rates to 6%

• El Nino & a weak monsoon result in inflation spiking

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