Reserve Bank Of India / This American firm has predicted– will interest rates fall in December?

The Reserve Bank of India kept the repo rate unchanged at 5.5% at its October 2025 monetary policy meeting. Rates remained unchanged for the second consecutive year. Morgan Stanley estimates further rate cuts in December 2025 and February 2026. The RBI projected FY26 GDP at 6.8%.

Reserve Bank of India: The Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 5.5% at its recent Monetary Policy Committee (MPC) meeting in October 2025. This is the second consecutive time the RBI has not changed the policy rate. Following the recent GST cut, citizens were expecting interest rate relief, but this move by the RBI dashed those hopes.

Morgan Stanley's Estimate: A Reduction May Happen in December 2025

US firm Morgan Stanley said in its report that the RBI may cut the repo rate by 25 basis points at the next MPC meeting in December 2025. This is likely to be followed by another cut in February 2026, bringing the repo rate down to 5%. According to Morgan Stanley, this reduction will be in line with domestic growth and inflation trends.

"We see a 25 basis point cut likely in the December policy, which is appropriate given the current economic scenario," the report said.

Economic Growth and Inflation Projections

The RBI has raised its GDP growth forecast for FY2026 to 6.8% from the earlier 6.5%. However, economic growth is expected to slow in the first half of FY2026 due to global challenges related to trade and tariffs.

On the inflation front, the RBI has lowered its core Consumer Price Index (CPI) inflation forecast for FY2026 from 3.1% to 2.6%. Inflation is expected to hover around 4.5% next year. Morgan Stanley, on the other hand, estimates that inflation will average below 4% in FY2026 and 2027, while overall economic growth may remain weak.

Need for Interest Rate Reduction

Morgan Stanley suggested that the RBI should have cut interest rates at its October meeting itself, as monetary policy impacts take time to be reflected in the economy. The report cites three key reasons:
Reduction in the core Consumer Price Index (CPI): Prices are trending downward, creating a favorable environment for interest rate cuts.
Weak economic growth: Economic growth is expected to slow, requiring policy easing to support it.
Global economic environment: Favorable conditions globally support interest rate cuts.