Rate cut hope lifts common man's spirits: RBI may slash interest rates by 25 bps

Mumbai (The Uttam Hindu) : Morgan Stanley, one of the world's leading financial companies, believes that the Reserve Bank of India (RBI) may cut interest rates by 25 basis points in December, due to which the repo rate will come down to 5.25 percent.

The RBI's Monetary Policy Committee (MPC) is scheduled to meet between December 3-5 and will review interest rates. Morgan Stanley says the monetary policy stance is expected to remain prudent. However, after this rate cut, the central bank may rely on data to make further decisions. The report states that the RBI is expected to adopt a wait-and-see approach while evaluating its three-pronged easing cycle, encompassing interest rates, liquidity conditions, and regulatory measures. This will give the RBI an opportunity to assess how these changes align with domestic growth patterns and inflation indicators before taking any future action.

Regarding the country's fiscal policy, the report stated that the government will continue to adhere to fiscal pragmatism, prioritizing capital expenditure and focusing on gradual consolidation. It added that these measures are necessary to sustain medium-term economic expansion. Morgan Stanley believes that retail inflation in India could rise modestly in fiscal year 2026-27 from the low levels of 2025. However, it will remain close to the RBI's medium-term target of 4 percent.

The global financial firm said India's current account deficit is also expected to remain below one percent of GDP. Despite global volatility, the country's services exports are expected to grow steadily, boosting India's global market share to 5.1 percent. India's external balance sheet is expected to remain strong and stable, supported by strong foreign exchange reserves and a low external debt-to-GDP ratio.