Morgan Stanley Expects One More Rate Cut In October Amid Cooling Inflation In India

Morgan Stanley expects the Reserve Bank of India (RBI) to cut the policy rate by 25 basis points in October, as inflation continues to ease across key sectors. The global brokerage firm believes the central bank will maintain a pause in its upcoming August meeting but sees the chances of an earlier rate cut rising.

In its latest research report, Morgan Stanley noted that the consumer price index (CPI) inflation has stayed below 4 per cent since February. The firm said inflation averaged 3.2 per cent in the first half of 2025, down from 5 per cent during the same period last year.

CPI inflation dropped sharply to 2.1 per cent year-on-year (YoY) in June — the lowest level since February 2019. Wholesale inflation also entered a mild deflation phase, further supporting the case for monetary easing.

CPI Drops as Growth Signals Remain Mixed

The sharp fall in inflation, combined with uncertain growth signals, has sparked debate about further policy easing. While Morgan Stanley expects the RBI to stay on hold in August, it says the odds of a cut are increasing due to faster-than-expected disinflation.

The report stressed that the RBI may wait for more clarity on economic growth before making a move. However, with the inflation outlook stable for the coming year, the central bank may be inclined to act in October.

Food inflation, which has driven overall price levels in recent years, has now moved into deflation. Food prices fell 1.1 per cent in June, the first contraction since 2019. A high base effect, strong crop output, and improved weather are key factors behind the fall.

Cereal inflation slowed to 3.7 per cent in June from 8.8 per cent last year, while vegetable prices plunged 19 per cent, compared to a 29.3 per cent rise in June 2024. Favourable rainfall has aided sowing activity, with cumulative rainfall at 109 per cent of the long-term average as of 17 July.

Sowing area for all crops has increased by 6.6 per cent, with rice sowing up 10.6 per cent year-on-year.

Government measures have also helped ease prices. Authorities imposed stock limits on essentials like wheat and pulses, sold wheat in the open market, and distributed subsidised vegetables and pulses under the Bharat brand.

Morgan Stanley’s outlook suggests that, while August may see a hold in rates, October could bring a policy shift — provided growth data remains moderate and inflation stays in check.

Also Read: ISRO Confirms Astronaut Shubhanshu Shukla In Stable Condition After ISS Mission