The monetary policy committee (MPC) of the Reserve Bank of India (RBI) started its three-day meeting on Monday amid expectations the panel would keep the policy repo rate constant and retain its accommodative stance on liquidity as the second wave of the coronavirus threatens the nascent economic recovery.

The focus is also on whether the six-member rate setting body will revise its inflation forecast given the uptick in February numbers and sticky core inflation.

Besides, central bank’s comments on the yield curve are of interest as the government looks to borrow record sums to prop up growth.

Observers are also watching out for any announcement on open market operations.

Retail inflation in February had inched up to 5.03 per cent which was below the central bank’s medium term target of 4 per cent with a band of +/-2 per cent even as elevated core inflation — the price basket stripped off the food and fuel components — remained a worry.

The high core inflation has led to expectations of a status quo on the policy repo rate which is 4 per cent at present even as the economy witnesses an uneven recovery.

“There will likely be some re-assessment of the growth outlook even as the RBI may not rush to reduce its FY22 growth forecast of 10.5 per cent dramatically amid second wave and series of local lockdowns,” said Madhavi Arora, lead economist at Emkay Global Financial Services.

Arora pointed to the opposing forces acting on prices. On one hand, “the risks of increasing input costs and commodity prices, seasonal or new supply disruption-led upside in food prices and better pricing power could prod MPC to take a relook at its 2021-22 inflation forecast”.

However, local lockdowns could impact services demand negatively and put downward pressure on core inflation and act as a balancing factor to emerging upside risks to inflation.

“We see core inflation outdoing headline inflation through the most part of 2021-22. While this could worry the policymakers, the policy stance will likely remain accommodative on both the rates and the liquidity front in the current calendar year.’’

In its February monetary policy, the monetary policy committee had projected inflation based on consumer price index at 5.2 per cent in the fourth quarter of 2020-21, 5.2-5 per cent in the first half of 2021-22 and 4.3 per cent in the third quarter of the next fiscal, with risks broadly balanced.