The Reserve Bank of India is unlikely to lower rates further in 2016 after cutting the rate by 50bp in September 2015. The efficacy of rate cuts is expected to depend on the rate of transmission to the lending rate. Till now there has been quite a muted response. Unless lending costs are lowered at a faster rate, it might not be suitable to blame the perceived high policy rates for corporate stress or lower investment.

Currently the banks are weighed down with high NPA's due to several factors such as the slow pace of reforms, defective policies, weak demand due to persistent weak external and domestic demand, and zealous corporate getting on board with a borrowing spree.

All these factors limit the banks' ability to cut lending rates. The RBI has made it compulsory for the banks to shift towards the process of using the marginal cost of funds to decide on their lending rates from 1 April 2016. A lucrative monetary policy also relies on a proper fiscal policy stance. The ability of the government to keep expenditure under control is also important.

The RBI is also expected to closely watch the budget on 29 February 2016 that will be presented by the government in order to get understanding of the exact path of the government's fiscal scenario. The central bank also requires being wary of domestic savers. At present, the savings rate in India is hovering at about 30% of the GDP. If rates are lowered further, it would weaken domestic savers who are greatly inclined towards bank savings.

"Given that headline CPI inflation has consistently been inching up since July 2015 (though within the target of 6% for January 2016), RBI is also likely to keep an eye on the ensuing inflationary trajectory. Bearing in mind all these factors, we see the chances of a rate cut at the forthcoming meeting in February as very low", says Societe Generale.