Indian Economy to grow faster than the RBIs target: Morgan Stanley

India's economy is likely to expand faster than the RBI's estimate, while the policy rate cutting cycle is likely near its end, economists Term deposit rates of major banks
at Morgan Stanley said in a note after the monetary policy review. At its first quarter policy review on Tuesday, the Reserve Bank of India left its short-term lending rate steady at 4.75 percent and the reverse repo rate at 3.25 percent.

The investment bank expects the domestic economy to grow 6.5 percent in the current financial year ending March 2010, above the Reserve Bank of India's upwardly revised 6 percent with an upward bias. They say "We believe that higher than expected industry sector growth will offset the negative impact of lower agriculture output due to poor monsoons."

"Moreover, with the rainfall and overall crop area under cultivation trend improving at the margin, the risk of a major downgrade revision to our agriculture growth forecasts has reduced," they added. Morgan Stanley expects wholesale price inflation to rise to 6 percent by end-March, above the central bank's estimate of 5 percent while industrial production is seen rising by 7-8 percent by the fiscal year-end.

"We expect the WPI to decline on a YoY basis during July-September 2009, on a high base effect and slow domestic demand, before rising to about 6 percent by end-March 2010 (compared with RBI's estimate of 5 percent," the note said. "We believe that the RBI will start hiking policy rates from February-March 2010 onwards".

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