Now that the stock of government securities with banks has declined to the SLR (Statutory Liquidity Ratio) levels of 25 percent, any increase in lending will have to come about only when banks borrow more. The impact of small changes in interest rates will be much higher than it has been.

Further, an appreciating rupee can also help curb prices. If there is global pressure on the dollar to depreciate and the RBI allows the rupee to become stronger by not intervening in the market, imported goods become cheaper. Refraining from market intervention also keeps liquidity in the system under control again helping in curbing inflation.

The combination of a rising rupee and small rises in interest rates could effectively curb inflation in the next few months.