In the mid-year monetary policy review on Tuesday, RBI, left the key interest rate unchanged but reduced cash reserve ratio by 0.25 per cent to infuse additional liquidity of up to Rs 17,500 crore (Rs 175 billion) into the system.
RBI kept the repo rate and reverse repo rate unchanged at 8 per cent and 7 per cent respectively.
"Given the central bank's guidance for monetary policy stance, we believe that policy rates would be on hold until end of 2012, with easing to start in 1Q 2013," Morgan Stanley said.
RBI's policy stance emphasised that even as the focus has been shifted to address growth risks, the objective of containing inflation remains important.
Inflation as measured by all indices has remained elevated and Wholesale Price Index-based inflation has remained above the RBI's comfort zone of 5 to 5.5 per cent for past 34 months now.
Going ahead, Morgan Stanley said, WPI inflation is likely to edge up to 8-8.3 per cent in the quarter ending December before moderating to around 7.5 per cent in the quarter ending March 2013
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