New Delhi, Aug 6 : Morgan Stanley on Wednesday said that in terms of policy response, it sees the likelihood of another rate cut by the RBI in Q4 (likely in October policy) amid headwinds from tariff-related developments.

In a unanimous vote, the RBI MPC kept the policy rate unchanged at 5.5 per cent, in line with expectations. All members voted to retain the stance at neutral.

'The policy statement noted that the benign trend in the headline inflation print is likely to be transitory, on the back to lower food prices, growth remains on expected lines and transmission of past rate cuts is underway, warranting a pause,' according to the Morgan Stanley note.

RBI maintained its GDP forecast at 6.5 per cent YoY for FY26, backed by resilience in domestic demand.

On external demand, it continues to remain watchful due to uncertainty, led by ongoing tariff negotiations, geopolitical tensions and volatile global financial markets.

On inflation, RBI lowered its headline CPI projections to 3.1 per cent for FY26, from 3.7 per cent earlier, mainly driven by lower inflation in the near term.

'The favourable outlook on headline inflation is buoyed by lower food inflation, even as core CPI remains a tad above the 4 per cent mark,' according to the global financial institution.

MPC indicated a prudent approach as it chose to pause, and indicated, "On balance, therefore, the current macroeconomic conditions, outlook and uncertainties call for continuation of the policy repo rate of 5.5 per cent and wait for further transmission of the front-loaded rate cuts to the credit markets and the broader economy.

The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path.

The key monitorables are high-frequency growth indicators, headline inflation trajectory and trade-deal-related developments, according to the report.

/IANS