Morgan Stanley expects RBI to raise rates by 125 bps cumulatively in FY23

Morgan Stanley expects the RBI to embark on policy normalisation with a 15-20bps hike in the reverse repo rate to normalise the policy rate corridor in the upcoming MPC meeting.

This is against the backdrop of both domestic and global developments. While growth recovery in India begins to exhibit signs of durable recovery, higher commodity prices led by escalated geopolitical tensions and the hawkish pivot in key global central banks will likely have a bearing on MPC deliberations.

Further, we expect inflation to remain above the upper threshold of the RBI's inflation targeting band for the next few months and to decelerate to around 5.5 per cent by 4Q22, Morgan Stanley said.

As such, we expect the RBI to adjust the reverse repo rate upwards in the April policy and follow that up with a repo rate hike in the June policy, with a cumulative rise of 125bps in F2023, the foreign brokerage has projected.

--IANS

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