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The Reserve Bank of India's (RBI) key lending rate is set to be held steady on Friday with inflation control retaining prominence amid expectations of a spike in food prices in coming months and better than expected economic growth.

The six-member monetary policy committee (MPC), consisting of three RBI and three external members, is expected to keep the repo rate unchanged at 6.50% for a fifth straight policy meeting as per a unanimous consensus in a Reuters poll.

It has raised the repo rate by a total 250 basis points (bps) since May 2022 in a bid to cool surging inflation, which dropped to a four-month low of 4.87% in October, but is expected to remain above the RBI's 4% medium-term target for some time.

The swap markets are signalling that the Indian central bank will only begin cutting rates in the middle of 2024, at least a quarter after the U.S. Federal Reserve is expected to start loosening policy.

"The focus will remain on keeping liquidity conditions tight, to enhance transmission of past rate hikes and prevent generalisation of price pressures," said Gaura Sen Gupta, an economist with IDFC First Bank.

The central bank is also widely expected to keep its inflation projections unchanged, while some analysts and market participants are expecting a tweak to its growth estimates after recent strong GDP prints.

India's economy grew 7.6% in the July-September quarter, much faster than the polled median of 6.8% and RBI's estimate of 6.5%, helped by government spending and manufacturing, raising bets that Asia's third-largest economy will outperform its own estimates for the full year.

RBI currently sees inflation averaging at 5.4% in the current financial year ending in March, while its full year economic growth forecast stands at 6.5%.

At its last policy review in October, the central bank said it may consider open market operation (OMO) based bond sales to keep liquidity tight but these sales have not happened.

Any major tweaks in the approach to liquidity could impact bond yields, traders said.

"We do not expect any explicit measure to be announced to tighten financial conditions, but RBI may sound cautious," said Abhishek Upadhyay, a senior economist at ICICI Securities Primary Dealership.

"The RBI may not signal any discomfort on the current tightness in banking system liquidity. They may continue to keep the optimality of OMO sales open to manage liquidity and financial conditions," he added.

The central bank also tightened rules for small personal loans in October, while nudging banks to raise deposit rates to complete the transmission of rate hikes announced so far.

While the RBI may not intervene in banks' commercial decisions, we do not rule out the regulator "softly prodding banks" to improve transmission, said Madhavi Arora, lead economist at Emkay Global Financial Services.