The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Wednesday maintained its GDP forecast at 6.5 per cent YoY for FY26 while lowering the CPI estimates for the period to 3.1 per cent. In contrast to the RBI’s upbeat outlook, Morgan Stanley pegged growth to moderate to 5.9 per cent QE Dec-25 even as RBI estimated growth to remain robust at 6.6 per cent.
Upasana Chachra, Chief India Economist at Morgan Stanley, said, “Based on our global team’s expectation of a slowdown in global growth in 2025, we expect growth to moderate to 5.9 per cent in QE Dec-25, while RBI estimates growth to remain robust at 6.6 per cent. Moreover, headwinds from adverse tariff-related developments may further weigh on our growth outlook.”
RBI maintains growth forecast, cuts inflation outlook
RBI maintained its FY26 GDP forecast at 6.5 per cent YoY, backed by resilience in domestic demand. On external demand, it continues to remain watchful due to uncertainty, led by ongoing tariff negotiations, geopolitical tensions and volatile global financial markets.
On inflation, RBI lowered its headline CPI projections to 3.1 per cent for FY26, from 3.7 per cent earlier (MSe: 3 per cent), mainly driven by lower inflation in the near term (H2CY25 CPI at 2.6 per cent). The favourable outlook on headline inflation is buoyed by lower food inflation, even as core CPI remains a tad above the 4 per cent mark. Moreover, Morgan Stanley said, the headline CPI print is likely to edge up to 4.4 per cent in QE Mar-26 and 4.9 per cent in QE Jun 26.
Status quo amid external uncertainty
The MPC-led by Governor Sanjay Malhotra, in a unanimous vote, maintained rates at 5.5 per cent, and stance as ‘neutral’. The policy statement noted that the benign trend in the headline inflation print is likely to be transitory, on the back of lower food prices, growth remains on expected lines and transmission of past rate cuts is underway, warranting a pause.
The central bank’s reaction function is likely to remain data-dependent, as it closely monitors domestic and global developments. Going forward, Morgan Stanley said, there is a possibility of an additional rate cut of 25 bps in Q4 as the growth outlook will likely be a tad weaker than RBI’s current estimate.
The MPC signaled a cautious stance by opting to hold rates, stating that given the current macroeconomic conditions, outlook, and prevailing uncertainties, it is appropriate to maintain the policy repo rate at 5.5 per cent and allow more time for the effects of earlier rate cuts to filter through to credit markets and the wider economy.
Key monitorables, Morgan Stanley said, include high-frequency growth indicators, headline inflation trajectory and trade-deal-related developments.