Reserve Bank of India left its benchmark rate at 6.75% in December, which was expected after September's hogher than expected 50bp rate cut.  RBI Governor Rajan said, "The Reserve Bank will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to 5% by March 2017".

RBI will work with banks to introduce more market based measure for bank rates. Whether RBO will be able to cut again is dependant on some risk factors like commodity prices, Pay Commission proposals and the effect of continued fiscal consolidation.

The sharp hike in inflation in November are a worrying sign. CPI inflation climbed to 5.41% from 5%. Food inflation spiked from 5.25% with vegetables prices rising 4%.

"Consensus has a 25bps cut in 2016. We think there is upside risk to this view", says RBC Capital Markets.