Daijiworld Media Network - Mumbai
Mumbai, Nov 19: Global financial giant Morgan Stanley expects the Reserve Bank of India (RBI) to deliver a 25-basis-point rate cut, bringing the repo rate down to 5.25 per cent at its Monetary Policy Committee (MPC) meeting in the first week of December.
According to the firm’s latest outlook, while the rate reduction appears likely, the RBI is expected to maintain an overall cautious policy stance and shift into a data-dependent mode after this initial move.
The report notes that the central bank will likely adopt a measured wait-and-watch approach as it evaluates the impact of its three-part easing cycle—covering interest rates, liquidity management, and regulatory adjustments. This pause would allow policymakers to observe how these initiatives influence growth dynamics and inflation trends before taking further steps.
On fiscal policy, Morgan Stanley anticipates the government will continue its pragmatic consolidation path, prioritizing capital expenditure to support long-term economic growth. Such an approach, the firm argues, is essential to sustaining momentum over the medium term.
Looking ahead, the brokerage expects India’s headline inflation to edge up slightly in 2026–27 compared to the softer levels projected for 2025, before gradually aligning with the RBI’s medium-term target of 4 per cent. Both food and core inflation are projected to settle in the 4 to 4.2 per cent range year-on-year, helping keep inflation expectations anchored and supporting consumer confidence.
In the external sector, Morgan Stanley forecasts that India’s current account deficit will remain manageable—around or below 1 per cent of GDP. Despite global trade challenges, the report highlights that India’s services exports remain resilient, preserving the country’s 5.1 per cent share in global markets. It adds that strong foreign exchange reserves, healthy import cover, and a low external debt-to-GDP ratio continue to bolster the nation’s external stability.
Meanwhile, the RBI has revised its GDP growth projection for FY26 upward to 6.8 per cent from 6.5 per cent, though it also signaled a possible growth moderation in the first half of the year due to trade and tariff-related pressures. The central bank has also lowered its inflation estimate for FY26 to 2.6 per cent, down from its earlier projection of 3.1 per cent.