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Morgan Stanley sees inflation below 4% in FY26–27
While the RBI upgraded its GDP forecast for FY26 to 6.8% YoY from 6.5% earlier, it also indicated a potential moderation in growth in the first half of FY26 due to trade and tariff-related headwinds. The RBI also lowered its headline CPI inflation forecast for FY26 to 2.6% from 3.1% earlier.
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The report highlighted that the RBI expects inflation to be around 4.5% one year from now. However, Morgan Stanley forecasts inflation to remain below 4% on average in FY26 and FY27, while overall economic growth is likely to stay weak. This, in turn, creates room for rate cuts.
Morgan Stanley says RBI should have already cut rates
Morgan Stanley also noted that the RBI should have already cut rates in this meeting, because monetary policy takes time to have an impact. “The current policy was a more opportune time to ease rates given lags in policy transmission, driven by (i) disinflationary impulses on headline CPI, (ii) weaker nominal growth conditions, and a (iii) supportive global macro-economic environment,” the report noted.