In a recent analysis released on Tuesday, Morgan Stanley economists Upasana Chachra and and Bani Gambhir declared that interest rate cuts in India for the fiscal year 2024-25 are “off the table” in light of significant shifts in global economic dynamics, particularly the evolving policy trajectory of the Fed Reserve.
The analysts emphasized that the Fed Reserve’s altered policy path, which is coupled with robust growth prospects in India has led them to revise their outlook on interest rates in the South Asian nation.
They highlighted key factors such as improving productivity growth, a rising investment rate and inflation hovering above the 4% target set by the Reserve Bank of India(RBI) as drivers for their assessment.
With India’s key policy rate anticipated to remain steady at 6.5% throughout the financial year ending March 31, Morgan Stanley projects that real interest rates will average at 200 basis points (bps).
This forecast highlights a significant departure from previous expectations, signalling a more cautious stance by monetary policymakers.
The Monetary Policy Committee (MPC) of the RBI recently opted to maintain the key repo rate unchanged for the seventh consecutive meeting earlier this month.
This decision followed a series of rate hikes totalling 250 basis points between May 2022 and February 2023, as the central bank endeavours to ensure inflation aligns durably with it’s 4% target.
Morgan Stanley’s analysis highlights India’s resilient growth trajectory, primarily driven by capital expenditure(capex) and productivity gains.
Amidst these developments, Morgan Stanley also forecasts a delayed initiation of the Fed Reserve’s easing cycle, with the first rate cut expected in July.
The analysis predicts a total reduction of 75 basis points in U.S. interest rates in 2024, with a relatively subdued cycle anticipated for the following year.
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