New Delhi: Inflation in India is expected to fall to 4.5 percent by next March, giving the Reserve Bank space to cut key policy rates by 50 basis points in the current fiscal, says a Morgan Stanley report.
According to the global financial services major, disinflationary pressures would keep the RBI on an easing path.
"We expect a 50 bps cut in the policy rate by quarter ended March 2017," Morgan Stanley said in a research note.
In the June monetary policy review, RBI Governor Raghuram Rajan kept interest rates intact, citing rising inflationary pressure, but hinted at a reduction later this year if good monsoon helps ease inflation.
The report further noted that inflation is expected to fall to 4.5 percent by quarter ended March 2017.
Fall in inflation would be largely because key drivers like commodity prices, wage costs, fiscal consolidation, property prices remain at benign levels and give "the RBI space to cut policy rates by another 50 bps by quarter ended March 2017 and taking cumulative rate cuts since January 2015 to 200 bps," Nomura added.
The industry is still hopeful of further rate reduction from the central bank to boost investment.
According to the global brokerage firm, "we expect macro-stability conditions to be maintained as the recovery is expected to be driven by rise in productivity, with a low risk of the economy overheating."
Meanwhile, the wholesale inflation accelerated for the third straight month in June hitting 1.62 percent on costlier food and manufactured items.
The hardening of the WPI index follows an uptick in retail inflation, which hit a 22-month high of 5.77 percent in June, dampening chances of a rate cut by RBI at its next policy meet scheduled for August 9.