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RBI to keep policy rates unchanged on Dec 2: Morgan Stanley

New Delhi: The Reserve Bank of India (RBI) is likely to hold interest rates at its monetary policy review meeting on December second but is expected to lower them by 50 basis points next year,
PTI November 28, 2014 9:26 IST
PTI

New Delhi: The Reserve Bank of India (RBI) is likely to hold interest rates at its monetary policy review meeting on December second but is expected to lower them by 50 basis points next year, a Morgan Stanley report said on Thursday.

According to the global financial services major, the first rate cut by the RBI is likely to be in or at the latest by April 2015.

"We believe that the RBI is likely to keep policy rates on hold on December 2, we assign a very low probability to a rate cut in that meeting," Morgan Stanley said in a research note.

The global brokerage firm believes that the CPI inflation would decelerate supported by factors like moderation in rural wage growth, further reduction in fiscal deficit, sustained positive real deposit rates, lower global commodity prices and moderation in housing costs.

"We think the first rate cut is likely to be in the February monetary policy meeting or at the latest by April 2015," the report said, adding that "we expect the RBI to lower rates by 50 bps in 2015".

After the first quarter of 2015, the CPI inflation is expected to decelerate to 6 per cent by April 2015, earlier than the RBI's expectation of reaching the 6 per cent mark by January 2016, it said.      

"We project CPI inflation to dip to around 4.5 per cent in November 2014 before edging up to around 6.4 per cent in 1Q 2015 as the favourable base effect recedes," the report said.

RBI Governor Raghuram Rajan in the September review left all key rates unchanged citing continued risks to inflation and difficult external situation especially on the geopolitical front.