Even though the Reserve Bank of India (RBI) is widely expected to cut key lending rates by 25bps at its bi-monthly meeting on 29 September, markets' focus is squarely on the tone of the central bank.

While falling inflation, slowing economy, and below-normal monsoon rainfall augur well for rate cuts beyond next week's meeting, an impending interest rate hike by the US central bank may curtail the room for the RBI to ease policy rates further.

On Thursday, the US Federal Reserve chair Janet Yellen reiterated that the bank is on track to begin raising policy rates this year. The US Fed kept rates unchanged at last week's meeting, citing turbulent global markets.

A rate hike by the US Fed is expected to weigh heavily on the emerging market currencies, including the Indian rupee. A sharp depreciation of rupee in such a scenario can limit the scope for additional rate cuts by the RBI.

The RBI had cut repo rate by 25bps to 7.25% at its June meeting, its third cut so far this year.

Here is what brokerages expect from RBI's meeting:

"The Reserve Bank of India's latest policy decision arrives on Tuesday and consensus expects a 25bps rate cut. Finance Minister Arun Jaitley has been vocal in trying to motivate a rate cut as inflation has recently softened to 3.7% y/y. Some — notably including the RBI itself — expect this downward pressure to be temporary partly because of looming upside pressures on food prices due to softer-than-usual monsoon rainfall. That could leave the RBI standing pat for now and acting only if inflation further surprises to the downside over coming months." – Scotiabank.

"We expect the central bank to cut the repo rate another 25bp in H2 15, likely in its policy meeting on 29 September. The RBI continues to emphasise that its future actions will remain data dependent. Accordingly, we think a prolonged period of disinflation and a moderation in inflation expectations could create room for a further 25-50bp of repo rate cuts in H1 16, though this is not our base case."—Barclays Capital.

"Admittedly, the impact of weak monsoon rains will be negated by other factors, such as low global prices and the low rise in minimum support prices of key crops announced by the government for FY15/16. But the RBI can't afford to be complacent, as food inflation has an important bearing on household inflation expectations, which are beginning to creep up again. The upshot is that there is little scope for aggressive policy loosening."—Capital Economics.

"Although consensus is a cut in repo rate by at least 25 basis points, market's focus will be more accentuated on the stance which  Rajan endorses. The language of the central bank will determine the broader trajectory. We expect a rate cut accompanied with a cautious outlook, considering that adverse impact of poor monsoon has not been yet quantified. In addition, RBI will also have an eye on Fed, wherein the dust has not settled down on the possibility of hike in US interest rates." -- Amar Ambani, Head of Research, IIFL.

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