The Reserve Bank's rate-setting panel on Monday started brainstorming for the next round of monetary policy amid expectations of a moderate interest rate hike of 25-35 basis points as inflation has started showing signs of easing and economic growth tapering.
The RBI has hiked key benchmark lending rate by 50 basis points (bps) thrice since June over and above an off-cycle 40 bps increase in repo in May.
RBI Governor Shaktikanta Das would be announcing the bi-monthly monetary policy on Wednesday (December 7) on the conclusion of the three-day of Monetary Policy Committee (MPC) meet.
India's largest lender State Bank of India in a research report authored by Group Chief Economic Adviser Soumya Kanti Ghosh on Monday said: "We expect the RBI to hike rates in smaller magnitude in December policy attuned to emerging market central banks and the overall rate setting tone. A 35-bps repo rate hike looks imminent. We believe at 6.25 per cent, it could be the terminal rate for now".
The current policy repo rate is 5.9 per cent.
Several other experts too expect the rate hike to be in the range of 25-35 basis points on Wednesday.
On September 30, the RBI had hiked the key policy rate (repo) by 50 basis points with an aim to check inflation.
It was the third successive hike of 50 bps. Before the September hike, the central bank had raised the repo rate by 50 bps each in June and August, and 40 bps in May.
Consumer price index (CPI) based retail inflation, which the RBI mainly factors in while arriving at its monetary policy, is showing signs of modertaion but still remains above the central bank's upper tolerance level of 6 per cent since January this year.
The inflation dropped to 6.77 per cent in October from 7.41 per cent in the preceding month, mainly due to easing prices in the food basket, though it remained above Reserve Bank's comfort level for the 10th month in a row.
The GDP growth in the second quarter of the fiscal slowed to 6.3 per cent as against a growth of 13.5 per cent in the preceding three months.
The RBI has been tasked by the government to ensure the retail inflation remains at 4 per cent with a margin of 2 per cent. However, it failed to keep the inflation rate below six per cent for three consecutive quarters beginning January 2022. So it had to submit a report to the government detailing reasons for the failure to contain prices and remedial steps to rein in the price rise.
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