The RBI's rate-setting panel on Monday started its three-day meeting amid expectations that the central bank may go for a 25 basis points hike in the benchmark interest rate, probably the last in the current monetary tightening cycle that began in May 2022.

Reserve Bank Governor Shaktikanta Das-headed Monetary Policy Committee, during its three-day meeting (April 3, 5 and 6), will take into account domestic and global factors, before coming out with the first bi-monthly monetary policy for fiscal 2023-24.

The decision of the six-member rate-setting panel will be announced by the Governor on Thursday.

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The central bank has already increased the repo rate by a total of 250 basis points since May, in a bid to contain inflation, though it has continued to remain above the RBI's comfort zone of 6 per cent most of the time.

The two key factors which the committee is expected to deliberate on while firming up the next monetary policy are elevated retail inflation and the recent action taken by the central banks of developed nations, especially the US Federal Reserve, the European Central Bank, and Bank of England.

Having remained below six per cent for two months (November and December 2022), retail inflation breached the RBI's comfort zone in January, warranting action by the central bank.

The Consumer Price Index (CPI)-based inflation was 6.52 per cent in January, and 6.44 per cent in February.

Experts are of the view that the central bank will raise the key policy rate (repo) by 25 basis points on Thursday, and it would probably be the last in the current monetary policy tightening cycle that began in May. The RBI has so far raised the repo rate six times, including the off-cycle surprise increase of 40 basis points in May 2022.

Also read: RBI hikes repo rate by 50 bps to 4.9 per cent

The RBI has been tasked to ensure that retail inflation remains at 4 per cent, with a margin of +/-2 per cent. However, it failed to keep the inflation rate below six per cent for three consecutive quarters beginning January 2022.

The MPC consists of three RBI officials and three external members appointed by the central government.

The external members are Shashanka Bhide (Honorary Senior Advisor, National Council of Applied Economic Research, Delhi); Ashima Goyal (Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai); and Jayanth R Varma (Professor, Indian Institute of Management, Ahmedabad).