India's central bank is expected to hold key interest rates steady to spur growth in its annual policy statement on Thursday, but analysts said a rate increase could not be ruled out given rising inflation. They were also wary of the Reserve Bank of India (RBI) springing another surprise after it caught markets off guard with its last rates decision in October, raising the benchmark short-term rate 25 basis points to counter an oil-fired rise in inflation.
A Reuters poll last week showed nine out of 11 analysts expected the Reserve Bank of India (RBI) to leave the short-term and lending rates unchanged at 4.75 percent and 6.0 percent respectively.
Analysts say the key reasons for holding off this time were concerns higher rates would raise government borrowing costs early in its debt issuance programme and worries a poor monsoon would dampen economic growth.
Though the weather office last week forecast a normal monsoon for June-September, memories of last year when rains started well but turned erratic could make the RBI cautious.
"We expect the RBI to be pragmatic by pausing tactically to gauge this year's monsoon," said Rajeev Malik, senior economist with J.P. Morgan in Singapore.
"While the tightening cycle is very much there, this would be just a pause to maintain growth momentum. If rains are poor its stand is vindicated and if good it can always raise rates later."