The three-day meeting of the monetary policy committee (MPC) will begin on Wednesday amid retail inflation still staying above the mandated target of 4 per cent and reduced majority for the BJP that has raised questions about the continuity of reforms and fiscal consolidation.

It is widely expected that the six member panel will leave the policy repo rate unchanged at 6.50 per cent for the eighth time.

The MPC is also expected to retain its stand of a rate cut only if there is a durable fall in inflation to the target even as it has an eye on how the monsoon progresses.

However, observers feel the current political developments are unlikely to figure in the deliberations. The repo rate has been pat at 6.50 per cent since February 2023.

The MPC’s decision will be announced on Friday.

Aditi Nayar, chief economist, Icra, said the recent inflation data and the outlook for prices of food and commodities had suggested a status quo on the rates as well as on stance of the monetary policy committee.

``This has been further cemented by the higher-than-forecast expansion in the Indian economy in Q4 FY2024, which led to the full year GDP growth printing above 8 per cent,” she said.

“As a result, the likelihood of a stance change in August 2024 followed by a rate cut in October 2024 has eased, unless an abundantly well distributed monsoon quells food prices in a sustainable fashion,” Nayar said.

Madan Sabnavis, chief economist, Bank of Baroda, said economic conditions have largely remained unchanged since the last policy.

High-frequency indicators such as the purchasing managers index — an index of factory activity in the country — also showed economic growth is on course.

At its last meeting in April, the MPC had projected CPI inflation for 2024-24 at 4.5 per cent and real GDP growth at 7 per cent.

Meanwhile, Punjab National Bank managing director Atul Kumar Goel said interest rates have peaked and are expected to see a reversal by the end of this year.

“Interest rates are contingent upon so many factors like growth, inflation, monetary policy stance of other countries. I think rates have reached the peak," he said.

"I think after some time maybe by the end of this year, we can see some reduction in the rate of interest,” the PNB MD told PTI.