The June monetary policy review saw an increase of 50 basis points (bps) in the repo rate, following an off-cycle hike of 40 bps by the Monetary Policy Committee (MPC) in May. With commodity prices falling amid fears of a global slowdown, there is a ray of hope that India’s consumer price index (CPI) inflation will fall within the tolerance band of 2-6% of the MPC by the mid-September quarter. Despite an aggressive US Federal Reserve, we expect a modest rate hike of 60 bps from the MPC spread across two policy reviews, followed by a pause to assess the strength of growth. In June, the MPC sharply raised its CPI inflation forecast for fiscal year 2013 to 6.7%, with a broadly balanced risk appetite from 5.7% projected in April. Subsequent data showed that the CPI inflation reading dipped to 7.0% in May-June, from an alarming 7.8% in April, while well above the upper tolerance level of 6.0%. However, the average reading for the quarter, 7.3%, fell marginally behind the MPC’s forecast of 7.5%.