The October Consumer Price Index (CPI) inflation moved past the Reserve Bank of India's (RBI) comfort level of 4 percent, to a 16-month high of 4.6 percent, led by a spike in food prices. Analysts expect that food inflation, as well as a low base, is likely to keep the inflation elevated in the coming months.

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Does this mean no more rate cuts by the Monetary Policy Committee (MPC)? Rise in inflation above RBI's target level may lead to central bank pausing the rate cuts in the upcoming policy meet and holding on the current rate till inflation softens.

However, Bank of America Merill Lynch (BofAML) is of the view that the MPC will still cut 40 basis points (bps) more in FY20. RBI MPC should still cut 25 bps on Dec 5 and 15 bps in February to support growth, said the investment bank in a report.

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As expected, inflation climbed to 4.6 percent in October from 4 percent last month. BofAML expects November CPI at 5 percent and inflation between November 2019-February 2020 at 4.7 percent, up from 3.3 percent in April-September.

It advised investors to look through the increase in end-2019 inflation as it is driven by a temporary onion price spike and base effects. CPI dipped to 2.2 percent between November 2018-February 2019.

"Averaging across the two years, to iron out base effects, we arrive 3.5 percent, well within the RBI's 2-6 percent inflation mandate. It is for this reason we expect the RBI to continue to cut policy rates to support recovery. We also do not expect the RBI MPC to respond to a temporary onion price hike," it said in a report.

The report noted that Governor Bimal Jalan had ignored agflation from drought to cut CRR/rates to support growth during the downturn of 1998-2004, which put India at the head of global recovery. However, the RBI's decision to hike rates in 2010 against an onion price spike hit growth, stated the report.

The report also highlighted that weak growth is constraining corporate pricing power. BofAML India Activity Indicator signaled that the slowdown will last another quarter and channel checks also suggested that Diwali festive demand in October was muted. Against this backdrop, BofAML forecasts September quarter GVA growth at 4.7 percent, bringing their FY20 growth forecast further down to 5.5 percent.

It also noted that fiscal deficit, if it comes even at 3.8 percent of GDP, assuming 50 bps slippage, is well below the medium-term 4.5 percent average.