BENGALURU: Indian shares inched higher on Thursday, with focus squarely on the country's central bank which several economists have said could increase the reverse repo rate to drain surplus liquidity from markets.

Market participants will keep a keen eye on the Reserve Bank of India's (RBI) commentary on inflation outlook, while seeking details on how it plans to support a bond market spooked by the government's record borrowing programme.

The RBI needs to balance policy conundrums amid surging term premia, and a mild hike in the fixed reverse repo may not be too disruptive at this stage, but markets will still have to be assuaged over material tightening of financial conditions, Madhavi Arora, lead economist at Emkay Global said in a preview note.

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The NSE Nifty 50 index rose 0.35% to 17,525, as of 0346 GMT, while the S&P BSE Sensex was up 0.41% at 58,708.17.

Both indexes have seen sell-offs this year after rising more than 20% in 2021, as central banks across the globe gear up to tackle high inflation and foreign investors exit emerging markets amid expectations for higher interest rates.

The RBI has held the key repo rate at record lows since May 2020 and reiterated time and again that it will remain supportive of growth and keep its stance accommodative until economic recovery is firmly entrenched.

Rate-sensitive financial stocks edged higher ahead of the policy announcement due at 0430 GMT. The Nifty Banking index , which had gained 8% this year by Wednesday's close, rose 0.2%.