With gross domestic product (GDP) growth continuing to surprise on the upside, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has the elbow room to stay pat on the repo rate and stance.

Therefore, the MPC's non-move during the June 7 policy review was per market consensus.

On its part, the RBI has turned more optimistic, revising GDP growth up by 20 basis points to 7.2% for this fiscal.

We now expect the MPC to begin cutting rates in October at the earliest and have lowered our expectation to two rate cuts this fiscal, compared with three earlier.

After the policy announcement, consumer inflation came in at 4.8% for May. However, core inflation, at its lowest in April as per the 2011-12 data series, slid further to 3.0%.

This is intriguing since strong growth is typically associated with a pick-up in core inflation.

A stubborn core has contributed to the sticky last-mile inflation in advanced economies. In contrast, food prices have been a persistent part of inflation in India even as core has been quite benign.

Weak consumption demand and low input costs have been driving core inflation down. This direction is expected to reverse, lifting core inflation from its lows in the current fiscal.

This month's theme dives into the innards of core inflation to understand its drivers.

Read on for details.

The next red-letter day on the economic calendar is the final budget for this fiscal. With majority of the portfolios retained, the new Union Cabinet is pointing towards policy continuity.

Hence, the government is expected to intensify focus on infrastructure build-out, sustainable growth and jobs creation.

Which means its spending needs may rise compared with the interim budget.

But this may not burn a hole in the wallet. Since the interim budget, some fiscal realities have become favorable due to faster growth and the surprise Rs 2.1 lakh crore dividend transfer from the RBI. The latter affords the government extra leeway to spend without compromising on the committed path of fiscal consolidation.

Fiscal consolidation will help lower the cost of government debt and put debt/GDP on a declining trajectory. Moreover, it will enable the RBI to achieve its stated goal of 4% consumer inflation on a durable basis.

With geopolitical risks lurking, a healthy fisc will provide crucial buffer - including against inflation.