The subtext of the latest monetary policy statement released by the Indian central bank is that inflation has peaked for now. The Reserve Bank of India (RBI) has cut its forecasts for inflation in the financial year that began this week. This means that consumer prices over the next four quarters are likely to grow closer to the rate that Indian monetary policymakers are comfortable with.

Five of the six members of the monetary policy committee (MPC) voted to keep policy interest rates unchanged. The hawkish Michael Patra voted for a rate hike. Bond yields tumbled to their lowest level in nearly four months in response to the policy statement, which was more sanguine on inflation compared with the February one.

The key question: Will the next move by the Indian central bank be a rate cut rather than a rate hike in case inflation stays close to target?

No central bank statement is ever unambiguous. RBI has flagged several undeniable reasons why its inflation forecast for the next fiscal year could go wrong—from an increase in farm support prices to higher global oil prices to fiscal slippages in a big election year. In the financial markets, the difference between the repo rate and the yield on the benchmark 10-year bond is still far higher than usual, a sign of not just tight liquidity in the money market but persistent inflation worries as well. Inflation expectations of households have also inched up, which is the channel through which increases in prices of volatile items such as food and fuel feed into the wider headline inflation.

Inflation in March now seems likely to be very close to the formal inflation target of 4%. It should pick up after that because of the low base of last year, when headline inflation averaged a mere 2.76% in the seven months from April 2017. Core inflation was higher as well as more stable during that period, which is why the trend in core inflation over the next few months will provide more important signals than the monthly swings in headline inflation data.

The overwhelming consensus in the markets was that interest rates were more likely to be increased rather than reduced over the next few quarters because of latent inflationary pressures in an economy that is gathering speed. High-frequency indicators such as consumer credit, motorcycle sales and demand for consumer durables point to momentum in consumer spending. Some recent data also provides tantalizing glimpses of an incipient investment recovery.

Are the new inflation forecasts by RBI reason enough to rattle the consensus? Bank of America Merrill Lynch economists Indranil Sengupta and Aastha Gudwani were among the rare dissenters till now. Their recent reports have been predicting a rate cut in the August meeting of the monetary policy committee, once there is more clarity on the state of the monsoon.

The risk from a strategy of rate cuts at a time when US interest rates are hardening is that the rupee can come under pressure when other macroeconomic vulnerabilities are on the horizon. So it will not be an easy call. A lot will thus depend on not just the growth-inflation dynamics in India but also what happens in the rest of the world.