New Delhi, August 6, 2025 — The Reserve Bank of India (RBI) has retained its FY26 GDP growth forecast at 6.5% year-on-year, citing resilient domestic demand and easing inflationary pressures. However, global brokerage Morgan Stanley has issued a more cautious outlook, projecting India’s growth to moderate to 5.9% in the December 2025 quarter, citing weakening external demand and adverse tariff developments as key risks.
The RBI’s Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, unanimously voted to keep the repo rate unchanged at 5.5% and maintained a ‘neutral’ stance. The central bank revised its headline Consumer Price Index (CPI) inflation forecast downward to 3.1% for FY26, from 3.7% previously, attributing the decline to lower food prices and a favorable monsoon outlook.
In contrast, Morgan Stanley warned that the recent escalation in US tariffs and ongoing trade negotiations could dampen India’s export momentum and weigh on overall growth. “Based on our global team’s expectation of a slowdown in global growth in 2025, we expect growth to moderate to 5.9% in QE Dec-25,” said Upasana Chachra, Chief India Economist at Morgan Stanley.
The brokerage also flagged the possibility of a 25 basis point rate cut by the RBI in Q4 2025, should growth indicators continue to soften. It emphasized the need for a data-dependent approach, highlighting inflation trajectory, trade-deal outcomes, and high-frequency growth metrics as key monitorables.
While the RBI remains upbeat about domestic consumption and investment trends, it acknowledged the uncertainty surrounding external demand, driven by geopolitical tensions and volatile global financial markets. The MPC noted that the transmission of previous rate cuts is still unfolding, and opted to pause further action to allow for broader economic absorption.
The divergence in outlook underscores the balancing act facing policymakers as India navigates a complex global environment marked by protectionist trade policies and shifting economic dynamics.
