Mumbai: Morgan Stanley economists do not expect the RBI to cut key interest rates in 2024-25 as the country is clocking a robust GDP growth and the US Fed has postponed its rate cut which could pose a risk to the Indian economy.


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According to economists Upasana Chachra and Bani Gambhir, factors such as improving productivity, increased investment rates, and inflation exceeding the 4 per cent target, alongside expectations of a higher terminal Fed funds rate, justify higher real interest rates for the Indian economy.


Morgan Stanley predicts a delayed commencement of the interest rate easing cycle by the US Fed which poses an external risk for the Indian economy as a stronger dollar may put pressure on the rupee and elevate the threat of imported inflation. This would necessitate a cautious approach to monetary policy, according to the investment bank.


Morgan Stanley had recently raised its forecast for India’s GDP growth to 6.8 per cent from 6.5 per cent earlier for the financial year 2024-25. In addition, the investment bank had increased its growth projection for the 2023-24 to 7.9 per cent.


India's key policy rate is expected to be steady at 6.5 per cent in 2024-25 while real rates should average 200 basis points, according to Morgan Stanley.


The RBI left the key policy rate unchanged at 6.5 per cent in its monetary policy review on April 5 for the seventh consecutive time with the aim of keeping inflation in check and ensuring that the economy moves on a stable growth path.


RBI Governor Shaktikanta Das said the monetary policy committee decided to continue with the “withdrawal of accommodation” stance to control inflation.


The RBI would continue with its disinflationary policy to ensure a stable growth path for the economy, he added.


He also said that food price inflation continues to weigh on the trajectory going ahead.