According to research by Morgan Stanley, a global financial firm, published on March 18, 2025, the Reserve Bank of India (RBI) is set to cut rates in the current fiscal year which will eventually lead to a lower inflation rate with declining food prices, allowing more spending power to the borrowers. The report pointed out that once the inflation is lowered, it will gradually drive food prices down, opening up more space for additional easing. Researchers at Morgan Stanley foresee that the CPI (Consumer Price Index) inflation to drop down at an average of 4 per cent which indicates a cumulative relief of 75 bps, in comparison to the previous 50 bps.
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In February 2025, India saw a decline in inflation, recording a seven-month low at 3.6 per cent. At that time, food prices also saw a steep deceleration. During the same time, food inflation was at 3.8 per cent for the month, recording a 21-month low.
The research also stated that the outlook for food inflation has seen improvement in FY 2026 because both winter and summer crop productions are also anticipated to experience a rise on a YoY basis, which will gradually help reduce volatility by creating buffers. The firm expects a settlement of a 4 per cent inflation rate in the upcoming fiscal year, against RBI's predicted 4.2 per cent.
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If the Reserve Bank of India (RBI) goes ahead with the planned rate cuts, borrowers and consumers stand to gain a number of advantages.
For the lenders, lower interest rates can bring down borrowing costs, making home loans, car loans, and personal loans more affordable. This could make individuals borrow more, which in turn could boost consumption in real estate and auto markets. Existing borrowers of loans with floating interest rates could find their EMIs decreasing, taking some pressure off them.
For consumers, reduced inflation typically means firm or even decreased prices of commodities such as food and other household expenditures. This can boost purchasing capacity, particularly for middle and lower-income households. If inflation is to remain at an average of 4 per cent in FY26, individuals might be able to do without seeing the cost of living grow appreciably.
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Still, reduced rates could lower the fixed deposit and other interest-bearing savings instrument returns too. Although that would be detrimental to conservative savers, it may drive money to equities or mutual fund investing as individuals would look for higher returns.
Overall, the expected cuts in the rate would improve borrowing affordability, enhance consumer purchasing, and relieve consumers from inflation hikes, and there would be some concessions against conservative savers.
