Nomura anticipates that the Reserve Bank of India’s (RBI) rate setting panel will reduce rates by a total of 100 basis points from October to mid-2025, more than its previous forecast of 75 bps of rate cuts for the same period.
“We believe that an inflection in India’s monetary policy cycle is around the corner, and it is unlikely to be shallow,” Nomura economists said in a note.
“While the initial easing will realign nominal rates with lower inflation, rate cuts in 2025 will likely be triggered by weaker growth.”
Data released on Friday showed India’s gross domestic product (GDP) grew at a slower-than-expected pace of 6.7% on an annual basis in the April-June quarter due to a decline in government spending during the national elections.
Following the data, Nomura lowered its economic growth forecast for the current fiscal to 6.7% from 6.9% a year earlier.
“Overall, Q2 GDP data are weaker than expected, although the role of transitory factors like elections, versus more persistent factors like slowing profit growth is still unclear,” Nomura said in a separate note dated Aug. 30.
Even as government spending picks up, lower corporate profit growth and a moderation in credit growth are likely to persist as growth drags, it said.
Last month, the RBI kept key policy rate unchanged for a ninth consecutive meeting amid inflationary pressures and maintained its ‘withdrawal of accommodation’ policy stance, with the governor flagging stubborn food inflation.
“High-frequency data show that prices of vegetables, cereals and pulses have already declined sequentially in August. We expect a moderation beyond August too,” Nomura said.
It expects India’s headline inflation to ease further to 3% year-on-year in August, and average at 3.6% in July-September, below the RBI’s inflation target of 4%.
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