Global brokerage firm Morgan Stanley has said that the Reserve Bank of India (RBI) is likely to go for one more rate cut of 25 basis points (bps) in its October policy meeting, even as inflation continues to fall rapidly. While the firm expects the central bank to keep rates unchanged in its upcoming August meeting, it also noted that the chances of a rate cut in August have increased due to sharper-than-expected moderation in inflation.

In its latest research report, Morgan Stanley said consumer price index (CPI) inflation has been consistently falling below 4 per cent since February this year. For the first half of calendar year 2025 (H1 CY25), inflation averaged just 3.2 per cent, compared to 5 per cent during the same period previous year.

In June, CPI inflation dropped sharply to 2.1 per cent year-on-year (YoY) — the lowest reading since February 2019. Wholesale prices, too, have entered a mild deflation zone. The drop in inflation, combined with mixed signals from economic growth data, has led to renewed discussions around monetary policy easing.

While Morgan Stanley expects a pause in the August meeting, it believes the RBI may choose to wait for more data on growth trends before making another move. According to the report, although near-term inflation has eased significantly, the inflation outlook for the next year remains stable, which may influence the central bank’s decision to delay another rate cut until October.

The report highlights that food inflation — one of the key contributors to overall price rise — has now entered the deflationary zone. Food prices fell 1.1 per cent in June, the first contraction since February 2019. This is largely due to a high base from last year, strong crop production, and better weather conditions.

For example, cereal prices grew only 3.7 per cent in June compared to 8.8 per cent a year earlier, while vegetable prices declined 19 per cent compared to a sharp 29.3 per cent rise last June. Favourable rainfall this season is also expected to support a good harvest. As of July 17, cumulative rainfall has been 109 per cent of the long-term average, and sowing activity is picking up.

The sowing area for all crops is up 6.6 per cent and for rice — a key staple — it is up 10.6 per cent compared to last year. On the policy front, the government has played a role in cooling food prices by imposing stock limits on essentials like wheat and pulses, selling wheat in the open market, and offering subsidised vegetables and pulses through the Bharat brand, as per the report.