As expected, Reserve Bank of India (RBI) has left policy rates unchanged focusing on the stickiness of inflation while highlighting the growth slowdown. Given the uncertainty on the monsoons and the lack of any pass-through on petro products, RBI's hands were more or less tied in pushing out the rate cutting cycle by a quarter. While the Statutory Liquidity Ratio (SLR) cut will pain markets in the short run, it provides much needed liquidity headroom especially given heightened global uncertainty and tight global funding markets. The RBI appears firmly in the saddle on liquidity management and we expect it to keep liquidity comfortable for most of FY13; following up the SLR cut with Open Market Operations (OMOs) and other liquidity easing measures. Also to some extent the SLR cut may reduce the unintended consequences of RBI's OMOs on market yields.