'Headwinds from adverse tariff-related developments': What Morgan Stanley says

Morgan Stanley in its fresh commentary post the RBI policy review said headwinds from adverse tariff-related developments may further weigh on India's growth outlook. The view comes as the Morgan Stanley's global team expects a slowdown in global growth in 2025, with India growing seen moderating to 5.9 per cent by December quarter against the RBI's forecast of 6.6 per cent.

Morgan Stanley said the RBI continued to remain watchful due to uncertainty, led by ongoing tariff negotiations, geopolitical tensions and volatile global financial markets. 

The MPC, it said, indicated a prudent approach as it chose to pause, and indicated," on balance, therefore, the current macroeconomic conditions, outlook and uncertainties call for continuation of the policy repo rate of 5.5 per cent and wait for further transmission of the front-loaded rate cuts to the credit markets and the broader economy." 

"The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path."

MPC maintained status quo on rates and stance, as anticipated, the foreign brokerage said.

"Going forward, the central bank's reaction function is likely to remain data-dependent, as it closely monitors domestic and global developments. In terms of policy response, we see the likelihood of another rate cut in Q4 (likely in Oct policy), as the growth outlook will likely be a tad weaker than RBI's current estimate," Morgan Stanley said. 

The brokerage said the pause on rates is premised on allowing the policy transmission to flow through to real economic variables. The neutral stance allows the MPC to retain flexibility on policy action, pencilling in the incoming trend in growth-inflation data, and thus remain data-dependent, it said.