RBI Monetary Policy Easing To Support India's Growth Amid External Risks, Says Morgan Stanley
Morgan Stanley expects easing of Reserve Bank of India's monetary policy will likely support India's growth amid rising external risks. The brokerage, however, remained watchful of domestic demand conditions, while it estimated two more rate cuts by the Reserve Bank of India. The terminal repo rate will likely be 5.5%, according to the brokerage.
The current repo rate is 6.00%. Market-watchers are awaiting the outcome of the RBI Monetary Policy Committee's three-day meeting on Friday.
Morgan Stanley expects RBI to remain flexible and boost domestic growth by easing interest rates, regulation, and liquidity.
The brokerage expects the government to choose to support the economy over fiscal consolidation, in case of a significant downside event.
It is monitoring the strength and skew of government spending, domestic liquidity and financial conditions, as well as the impact of the upcoming monsoon season, and the trend in capital inflows and dollar index trajectory. The brokerage also remained watchful of developing trade deals between India and other countries.
Morgan Stanley estimated that India's GDP will likely grow at the rate of 6.2% in financial year 2026.
State Of Economy: Mixed Trend Across SectorÂ
High-frequency data suggested a mixed growth trend across sectors, Morgan Stanley said in its India Trendspotting report on Thursday.
GST collection remained resilient at Rs 2 lakh crore in May. Growth rate rose to 16.4% on the year in May, compared to 12.6% in the previous month, the brokerage said.
India's manufacturing Purchasing Manager's Index slowed to 57.6 in May, while services PMI remained largely steady at 58.8 due to healthy demand conditions, Morgan Stanley noted.
The government spent Rs 1.6 lakh crore in April, marking sharp growth of 61% on the year, due to base effect, it said.
Credit growth in India moderated to 9.8% on the year in May, compared to 10.3% in April. Similarly, average daily credit spending softened to 4.8% year-on-year basis.
Power demand fell 4.9% in May against a 2.2% rise in April, according to Morgan Stanley.
Vehicle registrations improved for two-wheelers, but moderated for passenger vehicles on year-on-year basis, the brokerage said.
Naukri Job Index weakened both on a year-on-year and sequential basis, led by a broad-based weak trend across sectors, Morgan Stanley said.
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