MUMBAI: At a time every analyst has ruled out rate cuts in this calendar, as against their forecast for a 25 basis points (bps) cut in the October policy. After the Reserve Bank governor unexpectedly sounded very hawkish at the August 8 policy review, Japanese brokerage Nomura shared how it expects the central bank to deliver a cumulative 75 basis points rate reduction this fiscal, starting from the October review.
For the ninth consecutive term, the RBI-led monetary policy committee kept the repo rates unchanged at 6.5 per cent in its latest monetary policy meeting announced on August 8.
We expect the Reserve Bank to deliver cumulative rate cuts of 75 bps in FY25, starting from October on the back of slowing underlying inflation and emerging growth softness, which according to the brokerage, makes it a pivotal case towards policy easing much stronger, Nomura said in a note on Wednesday.
Meanwhile, the July inflation printed in at a five-year low of 3.5 per cent. This only adds to the brokerage’s cheaper money policy expectation.
On GDP growth, the brokerage expects growth to soften alongside easing inflation and may moderate to 7.1 per cent on-year in the June quarter, down from 8.6 per cent in the March quarter. But even at 7.1 per cent, Nomura feels that GDP growth still remains strong, driven by fixed investment, a positive contribution from net exports and the resilient industrial and services sectors.
However, the brokerage further points out that data forecasts for Q2 and early data for Q3 suggest some softening of the growth momentum, evidenced in urban consumption indicators like passenger car and medium and heavy commercial vehicle sales, reports of weaker corporate results and moderating export and core import growth.
Yet, it still suggests that better rainfall can aid rural recovery, although rural terms of trade are still low by historical standards, and real rural wage growth continues to decline.
In the near-term, the brokerage feels challenges may arise from the lack of a broad-based recovery in private consumption and private capex, diminishing terms-of-trade benefits for companies, reduced government spending due to election-related factors, and macroprudential tightening by the RBI.
However, the country’s strong medium-term growth drivers, robust fundamentals, and ongoing reforms are expected to support GDP growth of approximately 7 per cent, with forecasts of 6.9 per cent for FY25 and 7.2 per cent for FY26, it concludes.