India's macro stability indicators to improve in FY24: Morgan Stanley

Chennai: India's macroeconomic stability indicators will gradually improve in FY24 owing to a combination of factors, Morgan Stanley said in a report.

According to Morgan Stanley, the macro stability indicators will gradually improve in F24 from somewhat elevated levels inAF23.

"A combination of easing in global commodity prices (YoY terms), healthy growth mix (more capex driven), and fiscal and monetary policy on a consolidating path create the basis for the trend in macro stability indicators to improve," the report said.

"We expect CPI inflation to average 5.5 per cent (6.7 per cent in F23 estimates) and the current account deficit to track at 2.5 per cent of GDP in F24 (2.9 per cent in F23 estimates)."

As regards to the repo rates, Morgan Stanley expects the Reserve Bank of India to hike in April and peg the terminal repo rate at 6.75 per cent.

A shallow rate cut cycle (of cumulative 50 basis points) from 1Q24 as visibility on durable moderation in inflation improves, the report said.

"We see risks to macro stability as tilted to the upside driven by changes in global commodity prices, domestic or global exogenous weather events and the pace of the growth recovery," the report notes.

Sticky trends in inflation and elevated trade deficit have raised some concerns on India's macro stability outlook, Morgan Stanley said.