Inflation rises to 5 percent in December compared to 4.4 percent in November. Good news is though there is rise but is lower than what was expected by the economists. This will lead to leeway for Reserve Bank to drop the interest rate.   The economic recovery with implementation of the new government’s policies and interest rate cuts will drive growth. Reserve Bank has open room to cut rates before its review in February. There has been indication that RBI will clinch on rate cut only after it is comfortable with macro developments including inflation numbers. While industry believes that all the parameters are conducive for rate cut. “With each passing day, we are coming much closer to the rate cut cycle,” says Barclays India Chief Economist Siddhartha Sanyal. Rate cut of 50-75 basis point is being expected in the coming policy. Samiran Chakraborty of Standard Chartered said purely from an inflation argument, a rate cut was likely in RBI’s February policy itself. Among the RBI’s pre-conditions for a rate cut, the fiscal deficit picture looked a bit iffy. Despite of the long awaited improvement in the inflation, it is still capricious on the part of the Reserve Bank on the ‘interest cut’ issue.   _______________________________________________________________________________________________________________________________________