The Reserve Bank of India headed by a new chief, Mr. Shaktikanta Das, will probably drop its hawkish bias on Thursday, the first step toward a possible interest-rate cut this year as inflation drifts lower and the economy slows.
The repurchase rate will probably be kept steady at 6.5 percent, according to 32 of the 43 economists surveyed, with the rest expecting a 25 basis-point reduction. Real interest rates in India are among the highest in Asia, and calls for the first cut in the policy rate since August 2017 have been growing.
Mr. Das will have an opportunity to lay out his monetary policy outlook at a press briefing shortly after the rate announcement. A career bureaucrat, Mr. Das is seen as more dovish on policy than his predecessor Mr. Urjit Patel, who quit in December following attacks on the RBI's autonomy.
Under Mr. Patel, the RBI raised interest rates twice last year and stuck to a 'calibrated tightening' stance in December. Mr. Das may shift that to neutral on Thursday.
Consumer prices rose 2.2 percent in December, the slowest pace in 18 months and below the RBI’s October-to-March forecast range of 2.7 percent to 3.2 percent. But core inflation — which strips out volatile food and fuel prices — has hovered around 6 percent due to elevated education and medical costs.
Mr. Das highlighted that difference in a recent speech, saying 'such wide divergences and large volatilities in inflation across major groups pose challenges for inflation assessment.'
In its December policy statement, the RBI forecast headline inflation at 3.8 percent to 4.2 percent in the six months starting April, not very far from its medium-term target of 4 percent.
With inflation hovering at multi-month lows, the real interest rate makes it a standout in the region, and harmful to economic growth, according to analysts.