As the RBI's Monetary Policy Committee (MPC) began 3-day meet to decide on key rates, UBS Securities India on Wednesday expects the central bank to keep policy rates steady, but could change its stance to neutral.
In an interview to CNBC-TV18, Tanvee Gupta Jain, chief India economist said space has opened up for a shallow rate cut cycle considering inflation has been benign for past months, "The house would assign a 25 percent probability of a rate cut tomorrow."
"The house is expecting a 50 basis points rate cut this year as a base case. The commentary is expected to be dovish, which is in-line with what we saw in last policy, wherein the commentary was dovish but maintained the stance," Jain said.
"Recent budget announcements saw fiscal slippages for this year. For the next year, the government is not committed to fiscal consolidation. So, expect deficit to remain at 3.4 percent,” she said.
"Even if they were to cut rates by 25 basis points tomorrow, monetary transmission looks unlikely, because of the wide gap between credit and deposit growth right now," she added.
The six-member MPC, headed by RBI governor Shaktikanta Das, will meet between Tuesday and Thursday for the sixth bi-monthly monetary policy statement for 2018-19.
Deviating from the practice of releasing the resolution of MPC in afternoon, the RBI will place it on its website at 11.45 am on February 7.
The RBI maintained status quo on the key lending rate (repo) in its last three bi-monthly policy reviews after raising the rate twice by 25 basis points each in the fiscal. Currently, the repo rate stands at 6.50 percent.
One basis point is a hundredth of a percentage point.