Mumbai, Nov 19 (NationPress) The renowned global financial services company Morgan Stanley anticipates that the Reserve Bank of India (RBI) will lower the repo rate by 25 basis points, bringing it down to 5.25 percent during its monetary policy committee (MPC) meeting set for the first week of December.

The report indicates that the overall policy approach is likely to remain cautious, with the central bank expected to become more data-driven following this adjustment.

According to the report, the RBI is likely to adopt a wait-and-see strategy as it assesses its three-pronged easing cycle, which encompasses interest rates, liquidity conditions, and regulatory measures. This strategy will allow the RBI to understand how these adjustments interact with domestic growth trends and inflation signals before making any further decisions.

On the topic of the nation's fiscal policy, the report suggests that the government will likely maintain a stance of fiscal pragmatism, prioritizing gradual consolidation while emphasizing capital expenditure. These initiatives are essential for supporting medium-term economic growth, as the report highlights.

Morgan Stanley projects a slight increase in India’s headline CPI in 2026-27 from the lower levels forecasted for 2025, while ultimately aligning closer to the RBI’s medium-term target of 4 percent.

It estimates that both food and core inflation rates will trend towards 4 to 4.2 percent year-on-year. This stabilization should help anchor inflation expectations and enhance consumer sentiment, the report further notes.

Regarding the external sector, Morgan Stanley predicts that India’s current account deficit will remain manageable, staying around or below 1 percent of GDP. Despite disruptions in global trade, services exports are stable, maintaining India’s global market share at 5.1 percent. The nation’s external balance sheet remains robust and steady, bolstered by foreign exchange reserves, adequate import coverage, and a low external debt-to-GDP ratio, as noted in the report.

Additionally, the RBI has revised its GDP growth forecast for FY26 to 6.8 percent year-on-year, up from 6.5 percent previously. However, it indicated a potential slowdown in growth for the first half of FY26 due to trade and tariff-related challenges. The RBI also adjusted its headline CPI inflation forecast for FY26 down to 2.6 percent from 3.1 percent.