Nomura expects India’s central bank to move toward rate cuts in October amid weakening growth

BENGALURU/MUMBAI (Reuters) – Nomura expects India’s central bank to start cutting interest rates next month as inflation in the South Asian nation eases and economic growth weakens, the investment bank said on Monday.

Nomura expects the Reserve Bank of India’s (RBI) rate-setting panel to cut rates by a total of 100 basis points from October to mid-2025, up from its previous cut of 75 bps for the same period period.

“We believe an inflection in India’s monetary policy cycle is imminent and unlikely to be shallow,” Nomura economists said in a note.

“While 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 that India’s gross domestic product (GDP) grew at a slower-than-expected 6.7% year-on-year in the April-June quarter as government spending fell during the national election. .

Following the data, Nomura cut its economic growth forecast for the current budget to 6.7 percent from 6.9 percent a year earlier.

“Overall, Q2 GDP data is weaker than expected, although the role of transitory factors such as the election versus more persistent factors such as slowing profit growth is still unclear,” Nomura said in a separate note dated August 30.

Even as government spending rises, lower corporate profit growth and a moderation in credit growth are likely to persist as growth slows, it said.

Last month, the RBI kept the key policy rate unchanged for the ninth consecutive meeting amid inflationary pressures and maintained its “rewinding accommodation” policy stance, with the governor signaling stubborn food inflation.

“High-frequency data shows that prices of vegetables, grains and pulses have already declined sequentially in August. We expect a moderation after August as well,” Nomura said.

Headline inflation in India is expected to ease further to 3% year-on-year in August and average 3.6% in July-September, below the RBI’s inflation target of 4%.