The Reserve Bank of India maintains a neutral posture and maintains the repo rate at 5.5%. Morgan Stanley predicts rate reductions in February 2026 and December 2025.
During its October policy meeting, the Reserve Bank of India (RBI) remained neutral for the second consecutive meeting and held the repo rate at 5.5%. The RBI may lower the policy rate at the next MPC meeting in December and again in February 2026, according to Morgan Stanley, which may lower the repo rate to 5%.
The study said, “Given the changing domestic growth-inflation dynamics, we envisage the probability of a rate drop of 25 bps in the December policy.”
Morgan Stanley predicts FY26–27 inflation to be below 4%.
Although the RBI raised its GDP prediction for FY26 from 6.5% to 6.8% YoY, it also hinted at a possible slowdown in growth in the first half of FY26 as a result of trade and tariff-related challenges. Additionally, the RBI reduced its headline CPI inflation estimate for FY26 from 3.1% to 2.6%.
According to the study, the RBI anticipates inflation to reach about 4.5% in a year. However, Morgan Stanley predicts that overall economic growth will likely continue modest and that inflation would average less than 4% in FY26 and FY27. Consequently, this creates space for rate reductions.
Morgan Stanley claims the RBI ought to have lowered interest rates earlier.
Morgan Stanley said that as monetary policy takes time to take effect, the RBI ought to have lowered rates at this meeting. According to the study, “given delays in policy transmission, with (i) disinflationary impulses on headline CPI, (ii) softer nominal growth circumstances, and a (iii) supportive global macro-economic environment, the present policy was a more appropriate moment to relax rates.”