Morgan Stanley on Tuesday predicted that the Reserve Bank of India (RBI) will start a rate easing cycle with a 25-basis point cut. This projection reflects current domestic growth and inflation trends.
The global financial services firm noted that the RBI might also add durable liquidity and monitor currency volatility. The Monetary Policy Committee (MPC) is scheduled to meet on February 7. Analysts expect the MPC to maintain a neutral stance, with consensus indicating a possible rate cut starting in February.
Headline Consumer Price Index (CPI) fell to 5.2% year-on-year (YoY) in December 2024, driven by declining food prices and a slight drop in core CPI. Morgan Stanley expects food price disinflation to accelerate, further lowering headline CPI. The brokerage estimates headline CPI will average 4.5% YoY in Q4 FY2025, aligning with the RBI’s projections.
The RBI has implemented several measures for orderly liquidity management. These include Voluntary Retention Routes (VRRs) of higher quantum, daily VRR operations since January 16, buyback of government securities worth ₹750 billion, and secondary market purchases of ₹102 billion in January. Additional actions include Open Market Operation (OMO) purchases of ₹600 billion, 56-day VRR of ₹500 billion, and buy/sell swaps of ₹5 billion.
Morgan Stanley expects the RBI to adopt a shallow rate easing cycle, citing moderating inflation and weaker-than-expected growth. The firm projects a cumulative 50-basis point reduction, beginning in February.
However, external factors like dollar strength, the U.S. Federal Reserve’s prolonged hawkish stance, and volatile global capital flows could challenge the RBI. Morgan Stanley believes these pressures might lead to currency weakness, requiring the RBI to manage liquidity carefully to mitigate outflows and maintain stable domestic financial conditions.
The note concludes that the RBI’s policy adjustments aim to balance domestic growth concerns with external risks effectively.
Also Read: CDSL Reports 21% Rise In Net Profit, Sales Up 30% In Q3 FY25
India evacuated 4,415 nationals from Iran and Israel under Operation Sindhu, the MEA said Friday,…
PM Narendra Modi will embark on a five-nation tour from July 2, visiting Ghana, Trinidad…
The Allahabad HC has directed the UPPSC to allow petitioner Sameer Khan to use a…
The Allahabad High Court strongly rebuked three senior officials from Baghpat district, the Collector, SDM…
The Adani Group has emerged as India’s fastest-growing brand in 2025, registering a massive 82%…
Flash floods struck Swat district, on Friday, sweeping 18 tourists, including women and children, into…