25bps Repo Rate Cut: According to a recent report released by Morgan Stanley, the Reserve Bank of India (RBI) is expected to reduce the repo rate by 25 basis points at its December 2025 policy meeting. The report emphasizes that this expectation is primarily driven by the continued decline in Consumer Price Index (CPI) inflation. We estimate that RBI will reduce interest rates by 25 basis points at its December 25 policy meeting, with the terminal policy rate at 5.25 percent. If RBI eases interest rates in December, the repo rate will fall to 5.25 percent.
25bps Repo Rate cut
According to the report, policy response is likely to be prudent. Following this move, the central bank is expected to rely on data and adopt a “wait and watch” approach. This will help RBI assess the combined impact of its three-pronged policy easing on rates, liquidity, and regulation. The central bank will also closely monitor emerging domestic growth and inflation trends before taking any further action.
RBI MPC Meeting
On the fiscal front, the report states that the government is likely to manage its finances in a careful and practical way. This includes focusing on gradual fiscal consolidation while prioritizing capital expenditure.
What Morgan Stanley report says
Morgan Stanley stated that such measures are crucial to support medium-term growth. The report also provides inflation forecasts. It expects core Consumer Price Index (CPI) to rise slightly in 2026-27 from its lowest level in 2025, ultimately in line with the RBI’s medium-term inflation target of 4 percent. Within the CPI, food prices are likely to be partially impacted by a weak base, while core inflation is expected to remain strong.
Morgan Stanley revises its presumption
Both food and core CPI are projected to converge between 4-4.2 percent year-on-year. With this convergence, inflation expectations are likely to remain stable, which, according to the report, will boost consumer sentiment. Regarding the external sector, Morgan Stanley estimates that India’s current account deficit will remain at or below 1 percent, and will not increase significantly.
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