A 25 basis point cut in the repo rate likely at the MPC meeting in December, Morgan Stanley says

According to a recent report by Morgan Stanley, the Reserve Bank of India (RBI) is expected to cut the repo rate by 25 basis points at its upcoming policy meeting in December 2025.

The report highlighted that this expectation is mainly driven by continued downward surprises in headline consumer price index (CPI) inflation. “On monetary policy, we expect the RBI to cut rates by 25 bps at the December 25 policy meeting, with a final policy rate of 5.25 percent.”

If the RBI eases interest rates in December, the repo rate will be reduced to 5.25 percent.

According to the report, the policy response is likely to remain cautious. After this step, the central bank is expected to become data-dependent and adopt a wait-and-see approach. This will enable the RBI to assess the combined impact of its three-pronged policy easing on interest rates, liquidity and regulation.

The central bank will also closely monitor evolving domestic growth and inflation trends before taking further steps. On the budget front, the report states that the government is expected to maintain its fiscal pragmatism. This includes a focus on gradual fiscal consolidation, while continuing to prioritize capital expenditure.

Such measures, Morgan Stanley noted, are important to support medium-term growth. The report also provided an inflation outlook. It expects the headline CPI to rise modestly in 2026-27 from the low levels expected in 2025, eventually coming in line with the RBI’s medium-term inflation target of 4 percent.

Within the CPI, food prices are likely to be partly affected by a weak base, while core inflation is expected to remain strong. Both food and core CPI are expected to converge to 4-4.2 percent annually. With this convergence, inflation expectations are likely to remain anchored, which should support consumer confidence, according to the report.

On the external sector, Morgan Stanley expects India’s current account deficit to remain in the range of or below 1 percent, without increasing significantly. The report also noted that India’s external balance remains strong due to adequate macro stability buffers, including healthy foreign exchange reserves, adequate import coverage and low external debt-to-GDP ratios.

Published on November 19, 2025