Morgan Stanley expects Reserve Bank of India (RBI) to keep its monetary policy rates unchanged in the upcoming meeting on April 4 to April 5, in a note.
The investment bank expects the status quo to remain unchanged, on grounds of India’s steady economic growth and inflation rates staying slightly below RBI’s projection.
The economic growth of the country is recovering, but is at an early stage, which requires the central bank to remain neutral on its monetary policy changes, the bank said.
The CPI inflation for Jan-Feb 2018 was 4.8 percent, below the the central bank's estimate of 5.1 percent for the March 2018 quarter.
“In a nutshell, the incoming data on inflation are unlikely to give rise to any fresh concerns on the upside as regards the inflation outlook,” Morgan Stanley said.
The economic growth of the country has also started picking up but at a slow pace as the impact of demonetization and Goods and Services Tax (GST) implementation waned, the bank said.
Morgan Stanley expects the monetary policy committee (MPC) will maintain its neutral stance and will maintain a 5-1 vote, with Michael Patra, one of the key member of the committee, likely to reiterate his case for a 25 basis point rate hike.
If the inflation rates do not overshoot in relation to RBI’s target and the economic recovery is on a surer footer by then, the bank expects RBI to raise its rates by the fourth quarter of 2018.
However, Morgan Stanley sees a downside and expects the RBI to act early, if poor monsoon conditions and stronger-than-expected growth were to emerge.