“We are expecting the central bank to be easing monetary policy in three areas,” Ahya said. “We have seen them already beginning to relax regulatory tightening on NBFCs, injecting liquidity, and now cutting interest rates on February 7.”
The RBI’s Monetary Policy Committee (MPC) meeting began on February 5 and will conclude with the policy announcement on February 7.
Also Read: SBI Research’s predictions on RBI interest rate action on Feb 7
Growth and inflation outlook
Morgan Stanley expects growth to accelerate to 6.5% on a quarterly basis from March 2025 onward.
Ahya’s rate cut projections are based on the assumption that growth remains on expected lines. “But if you don’t see that growth accelerating to 6.5% because of tariffs or other reasons, then we see the risk of the central bank cutting additionally in line with declining growth rates,” he said.
Ahya noted that the ongoing tariffs wars could have a disinflationary effect, particularly if trade tensions escalate and slow global growth. While tariffs may initially cause inflationary pressures in countries imposing them, their overall impact is deflationary as they weaken global economic momentum. This, he suggested, could put downward pressure on Indian inflation, potentially leading to more than two rate cuts by the RBI if growth concerns intensify.
Retail inflation in India eased to a four-month low of 5.22% in December 2024 mainly due to easing of prices in the food basket, data released by the Ministry of Statistics & Programme Implementation showed on January 13.
Trade war risks and impact on Asia
Ahya noted that the scale of trade tensions will determine the impact on global economic growth. If tariff hikes remain limited to China, corporate confidence may not take a major hit. However, if the dispute expands to multiple trade partners, it could drag down regional GDP growth by one percentage point.
“If we do see multiple trade partners getting into this dispute, that will have a much bigger negative effect on trade, growth, and output,” he explained. In such a scenario, China is expected to see a one percentage point GDP loss, while India could face a 30-50 basis point impact.
Also Read | Not out of woods yet on tariff actions: S&P Global Ratings
For the full interview, watch the accompanying video
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