RBI December MPC Meet: 25 bps rate cut likely? Morgan Stanley expects more data-dependent stance

The Reserve Bank of India (RBI) is expected to cut the repo rate by 25 basis points to 5.25 per cent in its December 2025 Monetary Policy Committee (MPC) meeting, according to a new report by Morgan Stanley.

The MPC meets in the first week of December. Explaining the rationale, the report said the move is supported by consistent softness in price levels. “On monetary policy, we expect the RBI to ease rates 25bp in the Dec-25 policy meeting, with a terminal policy rate of 5.25 per cent,” Morgan Stanley noted. If the cut goes through, this will mark the next leg of the RBI’s ongoing easing cycle.

RBI expected to turn data-dependent

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Morgan Stanley emphasised that the broader policy stance is set to remain cautious. “After this reduction, we expect the central bank to adopt a more data-dependent stance and move into a wait-and-watch mode,” the report said.

This shift will help the RBI study how its “three-pronged easing ”cycle”—covering interest rates, liquidity infusion, and regulatory adjustments—plays out across the economy.

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The RBI will closely track domestic growth indicators and inflation behaviour before signalling any further actions. According to the report, such an approach will ensure that policy support is well-timed and does not fuel unwanted price pressures. On the fiscal side, Morgan Stanley expects the Union government to stay committed to gradual consolidation. “Fiscal pragmatism will remain central, with continued priority to capital expenditure,” the firm said.

Capex-led growth, it added, will be crucial for sustaining medium-term momentum, especially as private investment gradually picks up pace.

Also Read: 1 more repo rate cut by RBI likely in MPC review in December: Economists

Inflation outlook: CPI expected to stabilise around 4%

The report projects that headline inflation may inch up slightly in 2026–27 from the low base expected in 2025 but will trend steadily towards the RBI’s 4 per cent medium-term target.
“Both food and core inflation are likely to converge towards 4.0–4.2 per cent year-on-year,” Morgan Stanley said, adding that this alignment should help keep inflation expectations well anchored.

The firm further noted that a stable inflation environment is expected to support consumer sentiment and strengthen the overall demand outlook.

India’s external position is expected to remain stable. Morgan Stanley said the current account deficit should remain near or below 1 per cent of GDP, supported by steady services exports.
“Despite global trade disruptions, India’s share in global services exports remains firm at 5.1 per cent,” it highlighted.

India’s external balance sheet also remains strong, underpinned by robust forex reserves, sufficient import cover and a low external debt-to-GDP ratio. These buffers, the report stated, put India in a “comfortable macro-stability zone.”

RBI's October MPC review

In its October MPC review, the RBI raised its GDP growth estimate for FY26 to 6.8 per cent from 6.5 per cent, though it cautioned that growth could moderate in the first half of the year due to tariff- and trade-related headwinds. The central bank also lowered its FY26 headline inflation forecast to 2.6 per cent from 3.1 per cent earlier.

The Monetary Policy Committee (MPC), after a detailed assessment of evolving macroeconomic conditions and the outlook, voted unanimously to keep the policy repo rate unchanged at 5.50 per cent. The MPC also decided to continue with its neutral stance.