Morgan Stanley prediction on RBI monetary policy:
Morgan Stanley’s economists anticipate that the Reserve Bank of India’s Monetary Policy Committee (MPC) might refrain from lowering the policy repo rate, currently at 6.50%, for the fiscal year 2025. This decision stems from various factors, such as strong domestic economic growth and the postponement of expected rate cuts by the US Federal Reserve.
“In our assessment, enhanced productivity growth, an increasing investment rate, and inflation exceeding the 4% target, coupled with an anticipated rise in the terminal Fed funds rate, justify higher real rates,” noted Morgan Stanley economists Upasana Chachra and Bani Gambhir on Tuesday.
The revised policy stance of the US Federal Reserve indicates a postponed initiation of the easing phase, with the first rate cut now expected in July 2024 instead of June, a reduction to three cuts in 2024 from the previous four, and a less aggressive easing trajectory with a total easing of 175 basis points compared to the previously anticipated 300 basis points by 2025.
“Morgan Stanley economists remarked, ‘Certainly, a projected increase in the terminal Fed funds rate alongside the strength of the US dollar (the DXY index has risen by 4.5% year-to-date) would necessitate a cautious approach from the RBI.
