The Reserve Bank of India (RBI), led by Governor Urijit Patel, is expected to slash the benchmark repo rate at the two-day bi-monthly monetary policy meeting scheduled to be held on December 7, following the ongoing tension the domestic market, concerning the ban on the INR500 and INR1000 notes that will weigh on the country’s economic performance in the near term.

Coupled, with uncertainties over the Trump-led administration in the United States, the demonetization move by Prime Minister Narendra Modi has left the Indian economy blunt, with over half of the country going cashless, thus affecting the cash-driven informal sectors, and also taking a toll on the gross domestic product.

Further, scope of food inflation dragging headline inflation lower also keeps the door open for an easy policy bias. These are likely to prod the MPC to consider a 25bp rate cut on Wednesday, followed by another cut in 1Q17. Few anticipate a bigger 50bp cut this week, though the authorities are expected to retain ammunition by taking a more measured cut, DBS reported.

November PMI-manufacturing was the first indicator to gauge the slowdown in momentum. While the index eased, there were no signs of a sharp decline. The index eased to 52.3 in Nov from a nearly two-year high of 54.4 in Oct. Firms cited a slowdown in manufacturing production, amid reports of cash shortages.

On the liquidity front, hopes are up that the central bank might withdraw the incremental cash reserve ratio (CRR) imposed on banks last week. This is in wake of a sharp increase in the ceiling of market stabilization scheme (MSS) to INR 6 trillion from INR 0.3 trillion earlier.

"Overall, the RBI MPC is likely to take a growth supportive stance this week," the report said.

Meanwhile, USD/INR currency pair has formed a bullish reversal pattern, after four successive downward bearish candlestick patterns at 68.22, up 0.28 percent. The Sensex traded flat at 26,243, while Nifty-50 futures traded 0.28 percent higher or 23 points at 8,131 by 07:30 GMT.