RBI Rate Cut October 2025: Morgan Stanley Predicts 50 BPS Drop
The Reserve Bank of India (RBI) is poised for a significant monetary policy shift, with Morgan Stanley forecasting dual interest rate cuts in the final quarter of 2025. This development comes as inflation remains well below the central bank’s target, creating room for accommodative monetary policy. Indwallet.com
Morgan Stanley’s RBI Rate Cut October 2025 Forecast
According to Morgan Stanley’s latest research, the RBI will likely reduce the repo rate by 25 basis points each in October and December 2025. This would bring the terminal policy rate down to 5% from the current 5.5%, marking the most aggressive easing cycle since the pandemic era.
“We expect headline CPI to average at 2.4 per cent YoY in F26, allowing the RBI to cut rates by 25bps each in Oct & Dec.” — Morgan Stanley Research Team
Inflation Data Supports RBI Rate Cut October 2025 Expectations
Recent inflation data strengthens the case for monetary easing. India’s Consumer Price Index (CPI) inflation rose to 2.07% in August 2025, up from 1.55% in July, but remains significantly below the RBI’s 4% target. Moreover, food inflation declined to -0.69% in August from -1.76% in July, indicating continued price pressures are subsiding.
| Metric | 2020 Average | 2025 YTD | Change |
|---|---|---|---|
| CPI Inflation (%) | 6.2 | 2.1 | -4.1 pp |
| Food Inflation (%) | 7.7 | -0.7 | -8.4 pp |
| Core Inflation (%) | 5.4 | 4.2 | -1.2 pp |
| Repo Rate (%) | 4.0 | 5.5 | +1.5 pp |
Economic Drivers Behind Rate Cut Predictions
Several factors support Morgan Stanley’s RBI rate cut October 2025 forecast. Core inflation has remained range-bound at 4.2%, while core-core inflation has stayed at 3.1% for 22 consecutive months below 4%. This indicates underlying price pressures have moderated significantly.
Additionally, GST rate cuts announced in September are expected to provide further disinflationary impulses. The government reduced taxes on FMCG, automobiles, and farm products, with effects visible from September 22 onwards.
Market Impact and Consumer Benefits
The anticipated RBI rate cut October 2025 will have far-reaching implications. Banking stocks have begun pricing in lower margins, while real estate and automobile sectors stand to gain from reduced borrowing costs.
“The benign trend in inflation is expected to be perpetuated further by disinflationary impulses from low food prices, recent cuts in GST rates, and lack of input price pressures.” — Morgan Stanley Report
For consumers, home loan EMIs could decrease by approximately ₹850–1,200 per month on a ₹50 lakh loan, assuming banks pass through the full reduction.
Risks and Considerations
Despite optimistic projections, risks remain. Global crude oil volatility, monsoon patterns, and export headwinds could all delay or dilute the easing cycle. Moreover, global monetary policy moves—especially by the US Federal Reserve—may affect RBI’s flexibility.
Expert Recommendations for Consumers
- Refinance existing loans: Secure better terms ahead of cuts.
- Diversify fixed deposits: Explore debt funds and bonds as FD rates may decline.
- Monitor EMI reductions: Track offers post-rate cut, especially in home and auto loans.
FAQs on RBI Rate Cut October 2025
| Question | Answer |
|---|---|
| How much rate cut is expected in October 2025? | 25 basis points, followed by another 25 bps in December 2025. |
| What will the repo rate be after both cuts? | 5%, down from the current 5.5%. |
| Which sectors benefit the most? | Real estate, automobiles, and banking borrowers. |
| Will loan EMIs reduce? | Yes, home loan EMIs could fall by ₹850–1,200 monthly on a ₹50 lakh loan. |
| What risks could delay cuts? | Crude oil spikes, weak monsoons, and global monetary reversals. |
Conclusion
Morgan Stanley’s prediction of an RBI rate cut October 2025 appears well-founded given current inflation and growth dynamics. With inflation well below target and export challenges rising, the case for easing is strong. However, RBI will likely proceed cautiously, balancing domestic priorities with global headwinds.
