Credit Suisse sees no "statistically robust evidence" of a structural increase in inflation, and expects core and headline WPI to drop below 4 percent and 6 percent, respectively, by mid-2013.

The investment bank says drop in market interest rates, diminishing lagged effects of higher policy rates, weaker rupee and the government's reforms mean economic growth has bottomed.

Stronger growth bodes well for a lower fiscal deficit, while the government could surprise many with a tighter-than-expected February budget, says note.

Credit Suisse expects the 10-year yield to fall to as low as 7.5 percent by mid-2013 as the bank sticks to its view the RBI will cut interest rates by 125 basis points (bps) by 2013/14, with 50 bps of it coming on Jan 29.