Could RBI Lower Rates in December and February, Bringing Repo Rate to 5%?
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Synopsis
In a significant forecast, Morgan Stanley predicts that the RBI might initiate interest rate cuts starting this December, potentially dropping the repo rate to 5% by early 2026. This could enhance economic growth and support consumption. What does this mean for borrowers and the economy? Read on to find out.
Key Takeaways
- The RBI may begin lowering interest rates in December 2025.
- The repo rate could decrease to 5% by the end of 2026.
- Lower rates may stimulate consumption and investment.
- The RBI's decisions will consider global economic conditions.
- Two MPC members suggested shifting to an accommodative stance.
New Delhi, Oct 1 (NationPress) The global investment firm Morgan Stanley announced on Wednesday that the Reserve Bank of India (RBI) may initiate interest rate reductions as soon as December of this year, with a subsequent cut anticipated in February 2026.
The analysis indicates that the current repo rate of 5.50 percent might gradually decrease to 5 percent by the end of 2026.
As per Morgan Stanley, easing inflation and the necessity to bolster economic growth will provide the central bank with the opportunity to lower policy rates.
The firm pointed out that India’s consumer price inflation is on a downward trend, while both global crude oil and food prices are stabilizing.
This scenario increases the likelihood of the RBI adopting a more accommodating monetary policy.
The report further noted that a cycle of rate reductions, starting with minor cuts in December 2025 and February 2026, would assist in decreasing borrowing costs for both households and businesses.
“This is expected to enhance consumption, stimulate investment activities, and further propel India’s growth trajectory,” the report highlighted.
Morgan Stanley also emphasized that the RBI will closely monitor global economic conditions, particularly movements in US interest rates and commodity price trends, before finalizing the pace of its rate reductions.
“Should the repo rate indeed fall to 5 percent as projected, it would represent the lowest policy rate in recent years, significantly boosting credit demand in sectors like housing, automobiles, and infrastructure,” Morgan Stanley noted.
The RBI held the repo rate steady at 5.5 percent and maintained a neutral stance in its latest monetary policy review on October 1.
The Monetary Policy Committee (MPC) unanimously decided to keep rates unchanged for the second consecutive meeting.
While this decision met market expectations, analysts pointed out that the current landscape of subdued inflation and sluggish nominal growth provides a potential avenue for easing.
Two MPC members even proposed a shift from a neutral to an accommodative stance, indicating room for future rate cuts.
Point of View
It’s crucial to recognize the implications of Morgan Stanley's predictions regarding the RBI's potential interest rate cuts. Such moves could significantly impact economic growth and credit demand in various sectors, benefiting both consumers and businesses. The RBI’s cautious approach aligns with the broader economic context, ensuring stability and growth.
NationPress
01/10/2025
Frequently Asked Questions
What is the current repo rate in India?
The current repo rate in India is 5.50 percent.
When does Morgan Stanley predict the RBI will cut interest rates?
Morgan Stanley predicts that the RBI may start cutting interest rates in December 2025, with another cut expected in February 2026.
What might be the new repo rate by the end of 2026?
The repo rate may fall to 5 percent by the end of 2026 according to Morgan Stanley.
What factors could influence the RBI's decision on rate cuts?
The RBI's decision may be influenced by easing inflationary pressures and trends in global economic conditions, especially US interest rates and commodity prices.
How will rate cuts impact borrowers?
Rate cuts are expected to lower borrowing costs for households and businesses, boosting consumer spending and investment activities.
