Morgan Stanley projects that Indias retail inflation will reach within the Reserve Bank of Indias target range by March 2023 . The effect of higher commodity prices wears off in YoY terms and supply chains resume to normalize .
Morgan Stanley projects that India's retail inflation will reach within the Reserve Bank of Indias target range by March 2023.As the effect of higher commodity prices wears off in YoY terms and supply chains resume to normalize, Morgan Stanley expects that inflation will slow in FY24.In addition, we expect a rise in capex in FY24, so we expect this higher capacity to help cap a further increase in core inflation pressures in FY25, according to a study published by the multinational investment firm in September, which forecasts retail inflation to increase to 7.41 percent in 2023-24 and to 4.8 percent in 2024-25, down from 6.6% in the current financial year 2022-23.Data for October is due to be released later this evening.The RBI is believed to have failed in coping with price increases if the CPI-based inflation is below the 2-6 percent range for three quarters in a row.
Further details about the meeting are yet to be released.Morgan Stanley predicts that the RBI will raise interest rates until February 2023, raising the terminal repo rate to 6.5 percent.The repo rate is currently at 5.9 percent.We also expect a halt in the next few months. We expect a shallow rate cut cycle of 50 basis points in 4Q23 and 1Q24 as inflation changes.On real rates, Morgan Stanley says domestic demand strength will be the primary driver of India's growth trajectory as the economy benefits from the full effect of the reopening vitality, the government supply-side focused action programs filter through to revitalize capex, and fundamentally stronger balance sheet positions of private sector, according to the report.However, a prolonged decline in global growth or recession, higher commodity prices, and potential risk aversion in international capital markets, according to the study.