RBI will likely cut repo rate by 25 bps on Tuesday: Morgan Stanley

The Reserve Bank is expected to cut key interest rate by 0.25% on Tuesday, which will be supportive of growth recovery, says a Morgan Stanley report.

According to the global financial services major, inflation is likely to be sustainably lower at 4.75% year-on-year in the quarter-ended March 2017.

In the upcoming policy review on April 5, the RBI is expected to cut policy rates by 25 bps, the report, said adding that a 25-50 bps of rate cut is expected in 2016.

"Our economist's out-of-consensus view of policy rate cuts has played out in 2015. He expects inflation to be sustainably lower at 4.75% YoY in the quarter-ended March 2017," Morgan Stanley said in a research note.

According to the report, "monetary policy will be supportive of growth recovery".

As per the brokerage firm's recent investor survey, about 2/3rd of investors expect 50 bps of rate cut in 2016.

The declining inflation and negative industrial outlook have strengthened a case for RBI cutting interest rate in its first bi-monthly monetary policy for 2016-17 on April 5.

RBI Governor Raghuram Rajan on February 2 left the key interest rate unchanged citing inflation risks and growth concerns.

Rajan on March 12 had said the government sticking to fiscal consolidation roadmap of reducing deficit to 3.5% of the GDP in 2016-17 was comforting.

On how that would feed into monetary policy, he had said, "wait and see".