While a 25 bps rate hike has been largely priced in, a bigger hike or further signs of tightening from the RBI will lead to a sell-off in bonds.
Dealers are waiting to see whether the RBI will cut the marginal standing facility rate or raise the cap on banks' repo borrowing to ease liquidity pressures.
Indian rupee likely to be negatively affected if equities fall on any rate hike.
KEY EVENTS/FACTORS TO WATCH
Mon: RBI to release macroeconomic review for fiscal first half
Tue: RBI policy review/press conference
Wed: RBI post policy telecon with analysts
* Fri: Foreign exchange reserves data