The Reserve Bank of India (RBI) is widely expected to hold interest rates steady at its policy review on Thursday ahead of the Budget, a new Reuters poll found, which showed expectations for a start to the rate cut cycle have been pushed back since January.
The RBI will leave its key repo rate unchanged at 8.5%, 17 of 20 analysts polled by Reuters said. In a January poll, 8 of 22 respondents had forecast a cut by the end of March.
A recent rally in global oil prices that threatens to derail India's slowing inflation is also expected to prompt the central bank to leave interest rates on hold for another month at least.
Analysts said the RBI was unlikely to make a move on interest rates or cut the cash reserve ratio further before the government sets its borrowing plan for the next fiscal year starting in April in the budget to be released on Friday.
The RBI cut the CRR, the share of deposits that banks must hold with it, by 75 basis points to 4.75% on Friday after the close of local markets, a move that surprised for its timing and its sharpness.
Only one respondent expects another 25 basis point cut in the CRR on Thursday, while the rest expect it to be held steady.
"Expansionary fiscal policy by the government will constrain the RBI from cutting policy interest rates," said Sailesh K. Jha, head of Asia Strategy at SEB in Singapore.
"It will also limit the scope for further significant CRR cuts beyond the 25-50 basis points we are forecasting in the first half of 2012."
The government is expected to say it plans to borrow Rs 5.3 trillion in the new fiscal year, up from a scheduled Rs 5.1 trillion in the current year, when it releases its budget on March 16, according to a Reuters poll.
Out of 14 respondents, 12 expect the RBI to reduce its key interest rate by 50 basis points to 8% by June-end, while two analysts expect a slower 25 basis point cut.
The first repo rate cut will be on April 17, when the central bank announces its annual monetary policy, said Rajeev Malik, an economist with CLSA in Singapore.
However, he expects the recent rise in oil prices to limit the room for RBI to cut interest rates.
India's factory output grew its fastest in seven months in January, powered by a surge in manufacturing including consumer non-durables, and is likely to give some space to the RBI to defer its policy easing, analysts said.