India's monetary policy committee is forecast to hold rates steady on Friday, yet the recent rise in global crude oil prices and continuous economic growth will likely keep inflation in focus.

All except one of the 71 economists polled by Reuters at the end of September said the Reserve Bank of India (RBI) would maintain its key repo rate unchanged at 6.50% at the conclusion of the meeting on Friday. One economist forecasts a 25-basis point rise.

"Even as the worst of inflation is behind us and core retail prices are on a downward journey, we would still expect the RBI to maintain a bit of hawkishness on inflation dynamics, given various uncertainties such as climate conditions, commodity prices and global risk positioning," said Yes Bank economists Indranil Pan and Deepthi Mathew.

India's annual retail inflation in August stood at 6.83%, down from 7.44% in July – a 15-month high – but stayed above the central bank's comfort range of between 2% and 6%.

The Reserve Bank of India has forecast inflation at 5.4% in 2023/24, but according to Deutsche Bank, it may increase this projection to between 5.5% and 5.7% on Friday, whilst holding the GDP forecast the same at 6.5%.

India's economy grew at its fastest pace in a year in Q2, with growth of 7.8% on year, bolstered by robust services activity and strong demand. However, a five-year low monsoon rainfall could limit future growth, Reuters reports.

Furthermore, analysts don't forecast the RBI will alter its stance from 'withdrawal of accommodation' and predict we'll see ongoing measures to ensure the banking system liquidity remains tight without affecting economic growth.

"The bigger concern is if the RBI would opt for a CRR (cash reserve ratio) rate hike to tighten liquidity and improve transmission this time around – after introducing the Incremental-CRR in the last policy," according to a note by the HDFC Bank treasury desk.

"We think it is unlikely that the central bank would look at tightening liquidity through more permanent measures like CRR at this stage," they said.