Global investment bank Morgan Stanley has projected that the Reserve Bank of India (RBI) will implement two 25 basis-point (bps) policy rate cuts — one in October 2025 and another in December 2025. The firm also revised its inflation forecast for FY26 downward to around 2.4%, signalling confidence in India’s price stability and growth outlook.
Rate Cut Expectations
Morgan Stanley’s report suggests that moderating inflation, stable currency conditions, and supportive global monetary trends will allow the RBI to ease its policy stance later in 2025. The anticipated cuts would take the repo rate lower, potentially stimulating credit growth and investment.
Inflation Forecast Revised Lower
The firm has also lowered its inflation forecast for FY26 to approximately 2.4%. This sharp downward revision reflects:
Softer food and commodity prices
Strong supply-side measures
Improved transmission of monetary policy
A stable rupee and manageable global oil prices
Impact on the Indian Economy
If these forecasts hold true, the following outcomes are likely:
Cheaper Borrowing Costs: Businesses and consumers may benefit from lower loan rates, boosting spending and investment.
Bond Market Rally: Lower inflation and anticipated rate cuts could lead to falling yields, benefiting debt investors.
Boost to Growth: With credit expansion and lower costs of capital, GDP growth could accelerate in FY26.
Global Context
Morgan Stanley’s view aligns with expectations of dovish turns by several global central banks as inflation moderates. India’s policy flexibility could reinforce its position as one of the world’s fastest-growing major economies.
Conclusion
Morgan Stanley’s forecast of RBI rate cuts in October and December 2025, alongside a significantly lower FY26 inflation outlook, paints a favourable picture for India’s economic prospects. If realised, these shifts could bring cheaper credit, stronger consumption, and renewed momentum for businesses.
FAQ Section
Q1. What policy rate cuts does Morgan Stanley expect from the RBI?
Two 25-bps cuts — one in October 2025 and another in December 2025.
Q2. What is Morgan Stanley’s inflation forecast for FY26?
Around 2.4%, revised lower from its previous estimate due to moderating price pressures.
Q3. How would RBI rate cuts affect borrowers?
They would likely lead to lower lending rates for home, auto, and business loans, making borrowing cheaper.
Q4. Why is inflation expected to fall in FY26?
Factors include softening food and commodity prices, improved supply chains, and a stable currency.
Q5. What does this mean for investors?
Bond markets could rally on lower yields, while equity markets may benefit from stronger growth prospects.
Published on : 17th September
Published by : SMITA
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