RBI likely to adopt 25-50 bps rate cuts in rest of 2019 on account of the benign inflation outlook, says Morgan Stanley

The Reserve Bank of India (RBI) is expected to adopt 25-50 bps in rate cuts in the rest of the year on account of the benign inflation outlook, easing household expectations and a favorable external environment – a dovish Federal Reserve and a weak US dollar, according to a recent research report from Morgan Stanley.

The MPC voted for a rate cut at its April meeting, with four members of the six-member committee voting for the cut. Continuing the pattern at the last meeting, members appeared divided in their views on growth and inflation.

While Dr Ghate and Dr Acharya suggested a patient wait and watch approach to address the growth slowdown, other members indicated a need to respond with policy action. On the inflation front, the MPC members who voted for the rate cut expect inflation to be benign. However, both Dr Ghate and Dr Acharya appear to be monitoring the incoming data in order to assess possible inflationary pressures, the report added.

The global outlook seemed to be a common concern among the members who voted for the rate cut. With that, they seemed to be worried about a growth slowdown while they continued to see inflation at low levels.

"Further, we expect growth to slow down and remain below 7 percent in the first half of the year. In our view, policy support in the form of low real rates and funding cost could help in achieving and sustaining growth momentum," Morgan Stanley further commented in its report.