India's upcoming central bank rates decision may be poised to surprise analysts

  • Most analysts expect that the Reserve Bank of India (RBI) will leave interest rates unchanged at a Wednesday policy meeting, according to a Reuters poll.
  • Still, Charu Chanana, deputy head of Asia research at Continuum Economics, told CNBC she still expects a hike.
  • Risks of inflationary pressure and the fact that Indian Prime Minister Narendra Modi is standing for re-election in 2019 make December a more suitable timing for a rate hike, she said.
Passers by are reflected on the logo of the Reserve Bank of India outside its headquarters in Mumbai on January 29, 2010. 
Pal Pillai | AFP | Getty Images
Passers by are reflected on the logo of the Reserve Bank of India outside its headquarters in Mumbai on January 29, 2010. 

The Indian central bank isn't widely expected to hike rates on Wednesday, but one expert told CNBC there's a chance the Reserve Bank of India uses the day's monetary policy review to make a move.

Charu Chanana, deputy head of Asia research at economics and policy research firm Continuum Economics, made the call, telling CNBC that there are still risks of inflation in the Indian economy.

The RBI's monetary policy review decision will be announced Wednesday afternoon. After a string of hikes since June this year the RBI kept interest rates unchanged in its previous review in October, surprising markets that had expected a rate hike to support a weakening rupee and to combat inflationary pressures from high oil prices, The Times of India reported.

India, a major oil importer, has suffered economic setbacks this year with an extremely weak Indian rupee and significant trade shocks.

"A stable or softer dollar, and stable or lower oil prices, will be a significant net positive for India as it takes the pressure off RBI (Reserve Bank of India) to continue to hike rates. We think that gets deferred to next year," Eric Robertson, head of global macro strategy and FX research at Standard Chartered bank told CNBC earlier last week.

That opinion was in the majority, according to a poll from Reuters.

Chanana, however, disagreed and said: "I still expect a hike. I know the markets have moved quite a bit in the last few weeks because of the reversal in the crude oil prices and some recovery in the rupee."

Risks of inflationary pressure and the fact that Indian Prime Minister Narendra Modi is standing for re-election in 2019 make December a more suitable timing for a rate hike, she said.

"I still continue to see upside risks to inflation. The monsoons have been quite uneven this year. There's a lot of farmer protests going on. So that is all going to pressure the government to kind of raise their procurements for the crops so as to, you know, give some support to the farmers ahead of the elections next year. That continues to give a lot of upside pressures to inflation — household inflationary expectations are still remaining quite high so I think they do still need to preempt a hike," she said.

"It's better to do it, you know, much farther away from the elections as they can. So I think December would still be a good timing for them to you know, preempt a hike," Chanana said.

—CNBC's Kavita Chandran contributed to this article