Morgan Stanley expects RBI to inject more liquidity, go for 2nd rate cut in April

Morgan Stanley connected Friday said that it expects the RBI to instrumentality immoderate further liquidity measures earlier end-March and different chopped of 25 ground points chopped successful the repo complaint successful April aft the cardinal slope reduced the argumentation complaint by 25 ground points to 6.25 per cent portion it retained the stance astatine neutral earlier successful the day.

In a unanimous vote, the MPC embarked connected a complaint easing cycle, with a 25 bps complaint cut, "in enactment with our and statement expectations". In addition, the MPC retained the stance astatine neutral, arsenic they "remain unambiguously focussed connected a durable alignment of ostentation with the target, portion supporting growth," reflecting connected the existent home growth-inflation dynamics, the Morgan Stanley study states.

These growth-inflation dynamics unfastened up argumentation abstraction for the MPC to enactment growth, portion remaining focussed connected aligning ostentation with the target.
While the argumentation contiguous did not denote immoderate further liquidity-enhancing measures, the Governor's connection alluded to providing "sufficient" liquidity and taking "proactive" measures to enactment liquidity, the study said.

The complaint easing was successful enactment with expectations, against the backdrop of a weaker-than-anticipated inclination successful home maturation and moderating inflation. Further, the RBI has utilized its levers to adhd liquidity (Rs1.5 lakh crore) portion besides indicating a softer attack towards immoderate impending regulations.

"We judge that the RBI is supporting maturation done easing rates, softer regularisation (deferring caller guidelines) and providing capable liquidity (expect further steps). We expect different complaint chopped of 25bps successful the April argumentation review, which whitethorn apt beryllium the past cut," the study states.

It further states that the RBI is expected to proactively negociate liquidity and instrumentality up immoderate further measures (OMO purchases/FX swaps) arsenic the liquidity shortage rises towards end-March. "We spot hazard of a longer complaint chopped cycle, if maturation betterment is lacklustre, driven by weaker home request and uncertainty from planetary factors," the study said.

To enactment its point, the study referred to the RBI Governor's connection highlighting that connected the regulatory front, determination is simply a trade-off betwixt stableness and ratio which should beryllium kept successful mind. He said that this trade-off volition beryllium kept successful caput portion formulating regulations.