RBI Update – Banks are likely to receive another major relief. Speculation is rife that the Reserve Bank of India may soon cut the repo rate, which could also impact ordinary account holders. It is expected that the Reserve Bank of India may decide to cut the repo rate by 25 bps.
Morgan Stanley expects the Reserve Bank of India to take this decision at its December 2025 policy meeting. In a report, it stated, “On monetary policy, we expect the RBI to reduce rates by 25 bps at the December 25 policy meeting. This will result in a terminal policy rate of 5.25%. The overall policy stance is expected to remain prudent. The central bank’s decision will also depend on data after taking this step.”
What the Report Said
The report stated that the bank is expected to adopt a wait-and-see approach while evaluating the upcoming three-pronged easing cycle, covering interest rates, liquidity conditions, and regulatory measures. This approach will also provide the RBI with an opportunity to assess how these changes interact with domestic growth patterns and inflation indicators.
Before deciding on future action, the fiscal side report stated that the government will continue to adopt a fiscally pragmatic approach, prioritising capital expenditure and focusing on gradual consolidation.
What did Morgan Stanley say?
According to Morgan Stanley, these measures will be necessary to maintain moderate economic expansion. According to the report, the inflation forecast indicates that headline CPI is expected to rise slightly in 2026-27 from the low level projected in 2025, ultimately moving closer to the RBI’s medium-term target of 4 per cent.
At the same time, food prices within the CPI may be somewhat impacted by a weak base. Core inflation is also expected to remain stable. Meanwhile, both food and core inflation will trend toward 4% to 4.2% year-on-year. With this alignment, inflation expectations should remain stable.