RBI May Cut Repo Rate by 0.25% to 5.25% in December: Report

Mumbai: Global financial services giant Morgan Stanley expects the Reserve Bank of India (RBI) to cut the repo rate by 25 basis points — bringing it down to 5.25 per cent — during the Monetary Policy Committee (MPC) meeting scheduled for the first week of December.

According to the report, the RBI is likely to maintain an overall cautious stance even after the rate cut, shifting towards a more data-driven approach. The central bank is expected to carefully monitor its three-part easing strategy, which includes adjustments to interest rates, liquidity management, and regulatory measures. This will allow the RBI to evaluate the combined impact of these moves on domestic growth and inflation before considering further steps.

On the fiscal front, Morgan Stanley expects the government to continue its strategy of fiscal prudence, pursuing gradual consolidation while maintaining strong emphasis on capital expenditure—seen as crucial for sustained medium-term growth.

The report also forecasts that India’s headline CPI inflation will edge up slightly in 2026–27 compared to the lower levels expected in 2025, eventually moving closer to the RBI’s medium-term target of 4 per cent. Both food and core inflation are projected to settle around 4–4.2 per cent year-on-year, helping keep inflation expectations stable and supporting consumer sentiment.

In terms of external stability, Morgan Stanley anticipates India’s current account deficit to remain manageable—near or below 1 per cent of GDP. Despite global trade challenges, India’s services exports have held steady, maintaining a global share of 5.1 per cent. The country’s external balance sheet also remains resilient, supported by strong foreign exchange reserves, sufficient import cover, and a low external debt-to-GDP ratio.

Meanwhile, the RBI has revised its FY26 GDP growth projection upward to 6.8 per cent from 6.5 per cent. It has also flagged potential growth moderation in the first half of FY26 due to trade and tariff-related pressures. Additionally, the central bank has lowered its headline CPI inflation forecast for FY26 to 2.6 per cent from 3.1 per cent.

--With inputs from IANS