The RBI has maintained its focus on stemming inflation even as economic growth remains in low gear. Under Raghuram Rajan, the central bank's new governor who replaced D Subbarao, the RBI has hiked its key benchmark repo rate thrice by a total of 75 basis points since September, with the latest hike coming in January.
While retail inflation, the major focus of the central bank fell to a 25-month low at 8.1 per cent in February 2014, the RBI will wait to see whether the declining trend continues before deciding to start cutting interest rates.
Retail inflation needs to be brought down to 8 per cent by January 2015 and to 6 per cent a year hence, according to the Urjit Patel committee's suggestion.
However, Morgan Stanley expects retail inflation to shoot up to 8.5 per cent in the near-term amid volatility in food prices and a base effect, leaving little room for monetary easing.
Thereafter, retail inflation may dip to 7.3 per cent in September and to 6.5 per cent in December amid weak demand, lower commodity prices and improving productivity in the corporate sector, Morgan Stanley said.
Dion Global Solutions Ltd.