New Delhi, Nov 19 (UNI) In its upcoming December 2025 monetary policy committee (MPC) meeting, the Reserve Bank of India (RBI) is likely to lower the repo rate by 25 basis points attributed to persistent downside surprises in headline Consumer Price Index (CPI) inflation, said Morgan Stanley in its latest report.
A 25 bps reduction would bring the repo rate down to 5.25 percent, which the report identifies as the terminal policy rate for the current easing cycle. Morgan Stanley noted that the RBI is expected to proceed cautiously. Following the December move, the central bank is projected to take a data-dependent, ‘wait and watch’ approach, evaluating the combined effects of its policy easing across interest rates, liquidity management, and regulatory adjustments.
This period of assessment will help the RBI gauge the evolving trends in domestic growth and inflation before making additional decisions. On the fiscal policy front, the report said the government is likely to continue its stance of fiscal pragmatism, balancing gradual fiscal consolidation with sustained emphasis on capital expenditure, an approach deemed vital for supporting medium-term economic growth.
Offering an outlook on the inflation, the report said the headline CPI inflation is expected to rise modestly in FY 2026–27 from the lower levels projected for 2025, eventually converging with the RBI’s medium-term target of 4%. Food inflation may witness some upward pressure due to a weak base, while core inflation is expected to remain stable.
Overall CPI components are forecast to converge to 4–4.2 percent year-on-year, helping keep inflation expectations anchored and supporting consumer sentiment. In terms of external sector dynamics, Morgan Stanley projected India’s current account deficit (CAD) to stay range-bound at or below 1% of GDP, avoiding any significant widening. India’s external balance sheet remains strong, bolstered by ample foreign exchange reserves, adequate import cover, and low external debt-to-GDP ratios, the report noted.
