Nomura Anticipates Indian Central Bank to Shift to Rate Cuts Starting in October Due to Slowing Growth, Reports Reuters

BENGALURU/MUMBAI – Nomura has projected that India’s central bank will commence interest rate cuts as early as next month due to a decrease in inflation and slowing economic growth within the country.

The investment bank anticipates that the Reserve Bank of India’s (RBI) interest rate-setting panel will implement a total reduction of 100 basis points from October through mid-2025, revising its previous estimate of 75 basis points for the same timeframe.

Nomura economists indicated in a report that a significant shift in India’s monetary policy is imminent, with expectations that the initial easing will align nominal rates with decreasing inflation rates. However, further rate cuts in 2025 are likely to be influenced by declining economic growth.

Recent data revealed that India’s gross domestic product (GDP) grew at a slower rate of 6.7% year-on-year for the April to June quarter, impacted by reduced government spending during national elections.

As a result of this data, Nomura has adjusted its economic growth forecast for the current fiscal year down to 6.7% from 6.9% a year prior.

In a separate note, Nomura commented on the Q2 GDP data, stating that while the results are weaker than anticipated, it remains uncertain to what extent temporary factors, such as elections, versus more consistent issues, like diminishing profit growth, have influenced this outcome.

Despite expectations of increased government spending, Nomura warned that lower corporate profit growth and a slowdown in credit growth are likely to continue weighing on the economy.

In its most recent meeting, the RBI maintained its key policy rate for the ninth consecutive time amid ongoing inflationary pressures and reiterated its stance on ‘withdrawal of accommodation,’ citing persistent food inflation as a significant concern.

High-frequency data indicates that prices for vegetables, cereals, and pulses have declined sequentially in August, with Nomura forecasting further moderation beyond that month.

The bank expects India’s headline inflation to fall to around 3% year-on-year in August and to average 3.6% from July to September, which is below the RBI’s target inflation rate of 4%.