India's monetary policy committee is widely expected to keep key rates on hold when it announces its decision on Friday but the recent uptick in global crude oil prices and sustained economic growth are likely to keep its focus on inflation.
All but one of the 71 economists surveyed by Reuters in late September said the RBI would keep its key repo rate unchanged at 6.50% at the conclusion of the Oct. 4-6 meeting, with one expecting a 25 basis point hike.
"Even as the worst of inflation is behind us and core retail prices are on a downward journey, we would still expect the RBI to maintain a bit of hawkishness on inflation dynamics, given various uncertainties such as climate conditions, commodity prices and global risk positioning," Yes Bank economists Indranil Pan and Deepthi Mathew said in a note.
Annual retail inflation in August was 6.83%, easing from 7.44% in July -- a 15-month high -- but remained well above the central bank's 2%-6% comfort band.
The central bank has forecast inflation at 5.4% in 2023/24 but Deutsche Bank expects it to raise that view to 5.5-5.7% on Friday while keeping the GDP forecast unchanged at 6.5%.
High inflation has put the focus back on liquidity management amid the reduced ability to keep hiking rates at the risk of hurting growth and that is likely to continue at the upcoming policy review.
India's economy grew at its quickest pace in a year in the April-June quarter, expanding 7.8% on year, buoyed by strong services activity and robust demand, but a five-year low monsoon rainfall could restrain future growth.
