New Delhi,

The Reserve Bank is expected to go for a hike in key policy rates by the fourth quarter of this year, as the country’s economic recovery is likely to be on a “surer footing” by then, says a Morgan Stanley report.

The global financial services major, expects the start of a shallow rate hike cycle by the fourth quarter of 2018.

“The key argument for the case for a rate hike by 4Q18 is two-fold, in that we don’t expect a significant overshoot of inflation relative to the RBI’s target and that the economic recovery will be on a surer footing by then,” Morgan Stanley said in a research note.

The global brokerage, expects private capex to show signs of recovery by the end of this year.

“Against this backdrop of greater certainty and a more sustained recovery in growth, the central bank can then move to commence a shallow rate hike cycle,” it said.

In the first bi-monthly monetary policy for 2018-19, the central bank left the repo rate unchanged at 6 per cent. The MPC maintained status quo for the fourth consecutive time since August last year.

Five members of the panel, including the RBI Governor, voted for a status quo while executive director Michael Patra was the lone member who wanted the key rate to be hiked by 25 basis points.

According to a Deutsche Bank Research, given the current and near-term growth-inflation mix, the RBI is likely to remain on an extended pause provided there is normal monsoon and global oil prices remain below USD 70/barrel.