India To Keep Rates On Hold In Policy Review On 5 April, Morgan Stanley Says

Morgan Stanley said India’s Monetary Policy Committee (MPC) will keep rates on hold in the policy review on 5 April with an unchanged policy stance.

“We expect repo rate to be unchanged at 6.5%,” Morgan Stanley’s Chief India Economist Upasana Chachra and Economist Bani Gambhir said in an investor note.

Morgan Stanley said its key takeaways are:

• Status quo on rates and stance likely in the upcoming policy as the Reserve Bank of India (RBI) awaits further confirmation on inflation moderation and stability in global factors.

• Inflation moderated to 5.1% in January-February, and is expected to track at 5% over the next two-to-three months before moderating to 3.6% in the quarter ending September 2024.

• Growth as per high-frequency data remains robust, with upside surprises in trailing data. The brokerage expects F25E GDP growth at 6.8%.

• The external balance sheet remains benign, with a range-bound trend in trade deficit and improvement in service trade surplus.

• Risks to monetary policy stem from stronger-than-expected growth, supply side shocks pushing inflation higher and/or global factors.

In its base case, Morgan Stanley expects inflation to moderate and current account deficit to remain manageable. Meanwhile, the brokerage’s US team expects the Federal Reserve to cut rates from the June meeting.

“As such, as the RBI gets visibility on gradual moderation in inflation toward 5% and below, we expect it to embark on a shallow rate cut cycle,” Morgan Stanley said.

The brokerage projects two rate cuts of 25 basis points each, with first rate cut likely in August or October policy meeting.

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