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 India's key policy rates will likely be held steady on Thursday for a sixth straight meeting but investors are keenly watching to see if moderating core inflation and a fiscally prudent budget allows policymakers to signal a turn in the cycle.

All but one of the 60 economists in the Jan. 10-Feb. 1 Reuters poll expected the central bank to hold the repo rate at 6.50% at the conclusion of its Feb. 6-8 meeting.

"It might be too soon to change the stance from a signalling perspective, as inflation remains above the 4%-target and the rate cut cycle is expected to start only from June/August," said Gaura Sen Gupta, an economist with IDFC First Bank.

"Therefore, we expect the RBI (Reserve Bank of India) to maintain the status quo on policy rates and stance."

The RBI has raised its key rate by a total of 250 basis points (bps) since May 2022 to tackle surging inflation, but has left it unchanged since February 2023 as price pressures moderated somewhat. Inflation has since stayed around the upper-end of its 2%-6% mandated range, well above its medium term target of 4%.

"The strength of the economy and still-elevated inflation suggest that the central bank will be in no rush to cut the repo rate," said Thamashi De Silva, assistant India Economist at Capital Economics.

"And at the margin, the RBI will prefer to remain on the sidelines in the build-up to and during the election to prevent any flare up of concerns over its independence."

A national election is due by May this year.

Annual retail inflation rose to 5.69% in December from November's 5.55%. Despite headline numbers staying above the 4% target, core inflation has been steadily declining, raising hopes for at least a change in policy stance to neutral.

Market participants are also hoping for some relief from the RBI on the liquidity front with the system deficit having hit a record high in January.

Last week, Indian Prime Minister Narendra Modi's government stuck to the path of fiscal consolidation in its last budget before the election.

The government's tight fiscal policy could open up room for the RBI to look at a slightly looser policy and provide higher liquidity over the next few months, Neeraj Gambhir, group executive and head of treasury at Axis Bank said on Friday.

"The budget would be viewed favourably. However, since this is unlikely to alter the near-term growth-inflation trajectory, the MPC would continue to focus on their objective of aligning inflation with the 4% target," said Vivek Kumar, an economist with QuantEco Research.