Morgan Stanley expects the RBI to cut rates in December and adopt a cautious, data-driven stance for future policy moves

Mumbai

The Reserve Bank of India (RBI) is expected to cut the repo rate by 0.25 percentage points to 5.25 per cent at its Monetary Policy Committee meeting in the first week of December, according to a new report by global financial services firm Morgan Stanley. The report says the central bank will likely remain cautious even after this reduction, shifting to a data-based approach for future decisions.

According to the report, the RBI is currently moving through a three-part easing cycle that includes interest rates, liquidity, and regulatory changes. Once the December rate cut is implemented, the central bank is expected to pause and closely study how these policy adjustments affect domestic economic activity and inflation trends.

On fiscal matters, Morgan Stanley believes the government will continue with a measured approach, focusing on gradual consolidation while keeping capital expenditure as a priority. This balanced strategy, the report says, is essential for maintaining steady growth over the medium term.

The report also predicts that India’s headline consumer price inflation may rise modestly in 2026–27 after expected lower levels in 2025. However, it should still move towards the RBI’s medium-term target of 4 per cent. Both food and core inflation are expected to stabilise between 4 and 4.2 per cent year-on-year, helping keep inflation expectations steady and supporting consumer confidence.

India’s current account deficit is expected to stay near 1% of GDP, supported by strong services exports and a solid external balance sheet. The RBI raised FY26 GDP growth to 6.8% but expects early-year slowdown, while lowering its FY26 inflation forecast to 2.6%.