The Reserve Bank's rate-setting panel is widely expected to raise its key interest rate by 50 basis points to check inflation and improve foreign capital inflow to arrest declining value of rupee against the US dollar, analysts said.
The decision of RBI Governor Shaktikanta Das headed six-member Monetary Policy Committee (MPC) is expected later today.
The government has tasked the central bank to ensure the consumer price index (CPI) remains at 4 per cent with a margin of 2 per cent on either side, but retail inflation has stubbornly stayed above the RBI's comfort zone since January.
As per the latest data, the inflation was at 7 per cent in August.
While inflation remains high, the Indian rupee is sliding sharply, the US dollar and was currently trading near 82 against the greenback. The rupee depreciation has hastened following the US Fed raising their interest rate thrice by 75 basis point each in the recent past. Other major central banks too have become aggressive in raising rates.
The RBI, which has since May raised the repo rate by 140 basis points (bps), may yet again go for a 50-bps increase, which will take the key rate to a three-year high of 5.9 per cent, say experts. The present rate is 5.4 per cent.
Industry body Assocham said hike in policy interest rates by the RBI in the range of 35-50 basis points seems unavoidable, given the tightening of rates by most of the central banks including the US Federal Reserve.
"While the industry would like to see lower interest rates, the main challenge and the priority is to tackle inflation head-on so that we have a sustainable growth," said chamber's Secretary General Deepak Sood.
He said the accommodative stance by the RBI supported by several fiscal measures by the government had certainly helped the economy in a multi-pronged manner.