Pressure mounted on India's central bank to lower interest rates on Monday and give another shot in the arm to the ailing economy after the government announced a blitz of reforms.
Before the slew of measures had all been announced, analysts widely expected the Reserve Bank of India to hold rates steady to keep a lid on inflation, up to 7.55 percent in August -- far above the RBI's comfort level.
But by late Friday, in the space of 24 hours, ministers hiked diesel prices by 12 percent, opened the doors to foreign investors in sectors including retail, and approved the part-privatisation of four state-run companies.
The central bank has repeatedly called for policy action from the government to reduce subsidies and improve the investment climate before further rate cuts could be countenanced.
The latest reforms, which show the government is willing to take risky and unpopular steps, have put the ball back in the RBI's court, say economists.
"These reforms are what we were waiting for," said Abheek Barua, chief economist with private HDFC Bank.
"We have changed our view. We now expect the RBI to cut rates by 25 basis points on Monday."
The benchmark repo rate, at which the RBI lends to commercial banks, currently stands at 8.0 percent, and the bank's policymakers are due to announce the results of their mid-quarter review at 11:00 am (0530 GMT).
Business leaders have been clamouring for a rates cut to help revive Asia's largest economy, which saw GDP growth of just 5.5 percent between April and June, its slowest expansion in three years.
But the RBI has kept rates on hold since April -- when it cut them for the first time in three years -- insisting inflation must recede and that the government needs to take steps to curb its ballooning deficit.
"The pendulum is shifting for the RBI to cut rates," said economist DK Joshi at the rating agency Crisil, although he thought the move may not happen as early as Monday.
Others agreed that a rates cut may still take time.
"Monday would be just too soon for the RBI to, as one would say, join the party," said Shubhada Rao, chief economist with private Yes Bank.
She said it would be "awkward" for the RBI if it hastily cut rates, only to see some of the reforms rolled back due to a political backlash.
It remains to be seen if premier Manmohan Singh can face down opposition from trade unions, protests and his fiery coalition ally Mamata Banerjee, who runs the regional Trinamool Congress party and wants the reforms scrapped.
But some say stuttering growth means the RBI will have to take a risk.
"There have been so many swings and so fast that it has been tough to take a call," said Siddhartha Sanyal, chief India economist with Barclays Capital.
"But now the RBI cannot remain silent, it has to deliver something. Growth is faltering to new lows," he told AFP.
The decision will kick off a crunch week for Singh's government, with Bannerjee due to unveil her response to the reforms on Tuesday and Rahul Gandhi, scion of the Nehru-Gandhi political dynasty, tipped to enter cabinet in an imminent reshuffle.
