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Morgan Stanley sees no change in RBI repo rate, expects cuts in early 2024

Morgan Stanley

Morgan Stanley sees no change in RBI repo rate

According to Morgan Stanley, the Reserve Bank of India (RBI) is likely to retain the present repo rate because inflation looks to be controllable.

According to Upasana Chachra and Bani Gambhir’s report titled ‘India Economics – Macro Indicators Chartbook: Growth Sustains Momentum; Macro Stability in Check,’ interest rates are expected to remain stable throughout 2023, with any shallow rate cut cycle beginning in the first quarter of 2024.

Based on a better inflation prognosis, the analysis predicts that the dangers of the same may begin sooner. “We see risks of a shallow rate cut cycle starting earlier based on an improving inflation outlook,” the paper added.

This implies that the repo rate, or key benchmark interest rate, will stay at 6.5 percent. The next monetary policy committee meeting of the RBI is set for June 6-8, 2023.

Morgan Stanley

According to Morgan Stanley’s projection, interest rates will stay stable until 2023, with retail inflation expected to remain below 6%.

In India, consumer pricing index-based (CPI) inflation, also known as retail inflation, has been progressively declining from a peak of 7.8 percent in April 2022 to 5.7 percent in March 2023. According to predictions, the rate will fall to 5.2 percent in the fourth quarter of the fiscal year 2023-24.

“March’s headline CPI print was in line with expectations.” “We expect inflation to decelerate more decisively in the June quarter, to below 5%, supported by a favorable base effect and moderating commodity prices,” according to the research.

Raising interest rates is a monetary policy tool that normally serves to reduce demand in the economy, allowing inflation to fall and vice versa.

In order to combat inflation, the RBI has raised the repo rate, or the rate at which it loans to banks, by 250 basis points since May 2022. According to Morgan Stanley, the RBI’s decision to keep the current repo rate is a smart move given the current inflation forecast.