Morgan Stanley sees India GDP growth near 6.5% in FY24 and FY25
RBI) estimates growth at 6.5% for FY24. Morgan Stanley expects headline inflation to moderate to 4.9% in FY2025 from 5.4% in FY2024. "On the external balance sheet side, we expect the current account deficit to remain in a range of 1.5-1.7% of GDP in F2025-26, steady terms of trade, and strength in net service exports," it said.
"India's inclusion in the GBI-EM index from Jun-24 will likely support the balance of payments by augmenting capital flows and thus aiding the funding profile," it added. In September, JPMorgan Chase & Co. said it will add Indian government bonds to its benchmark emerging-market index from June 2024.
The inclusion of Indian bonds in JPMorgan's emerging market debt index is expected to bring in more foreign inflows into the country. Meanwhile, Morgan Stanley expects India's central bank, The Reserve Bank of India (RBI), to keep interest rates steady till the first half of 2024. "However, we maintain our expectation of a shallow rate cut cycle from June-24, driven by visibility of sustained moderation in inflation.
We build in two rate cuts of 25bps each, which will keep real policy rates averaging at about 100bps in 2024," it said. "Risks of a delayed start to the easing cycle could emerge from higher commodity prices (especially oil) pushing up inflation and/or tighter global financial conditions weighing on the currency and adversely impacting macro stability," it added. The RBI has kept the repo rate unchanged at 6.5% since February.
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