Expect 25 bps RBI rate cut again on Feb 3: Morgan Stanley

Moneycontrol Bureau

Brokerage house Morgan Stanley says a big rate cut cycle is underway, and it sees the RBI cutting interest rates by 125 basis points over the next 12 months.

It sees the RBI cutting the repo rate by 25 basis points more at its monetary policy review on February 3.

“We expect the RBI to front load the rate cuts by potentially taking up a 50bps rate cut in one of the monetary policy meetings after Feb 3,” said the Morgan Stanley note to clients, penned by Chetan Ahya and Upasana Chachra.

“Our rate cut forecasts is predicated on our view that CPI inflation will stay at closer to 5% in most of the calendar year 2015, as the reduction in fiscal deficit, sustained deceleration in rural wages and lower global commodity prices will mean that inflationary pressures in the economy will be contained,” said the note.

 Morgan Stanley’s view of another rate cut on February 3 is contrary to the consensus view that the next rate cut is likely only in either March or April, based on RBI’s assessment of the fiscal consolidation steps in the Budget.

Most economists are expecting a 50-75 basis cut in interest rates in FY16 on expectations that inflation should continue to recede.