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Morgan Stanley: Best of Easy Monetary Policy May Be Behind Us

Morgan Stanley expects RBI to keep rates on hold as they expect growth to recover and inflation to remain above the 4% mark. They believe a quick recovery in growth can pose upside risks to inflation. They also expect RBI to eventually take the call rate closer to the repo rate as growth recovery strengthens. They believe that as growth recovers in 2021, the neutral policy rate will have also risen and the RBI will have to think about taking the effective policy rate closer to the repo rate. They are bullish on INR because as they believe the RBI could allow INR to catch up with the broad USD weakness to reduce domestic inflation pressures.