RBI may start rate hike from year-end: Morgan Stanley

The global financial services major, expects the start of a shallow rate hike cycle by the fourth quarter of 2018. “The key argument for the case for a rate hike by 4Q18 is two-fold, in that we don’t expect a significant overshoot of inflation relative to the RBI’s target and that the economic recovery will be on a surer footing by then,” Morgan Stanley said in a research note. The global brokerage, expects private capex to show signs of recovery by the end of this year. 

“Against this backdrop of greater certainty and a more sustained recovery in growth, the central bank can then move to commence a shallow rate hike cycle,” it said. In the first bi-monthly monetary policy for 201819, the central bank left the repo rate unchanged at 6 per cent. The MPC maintained status quo for the fourth consecutive time since August last year.

Five members of the panel, including the RBI Governor, voted for a status quo while executive director Michael Patra was the lone member who wanted the key rate to be hiked by 25 basis points. According to a Deutsche Bank Research, given the current and nearterm growth-inflation mix, the RBI is likely to remain on an extended pause provided there is normal monsoon and global oil prices remain below $70/barrel.