Nomura, which was one of the first to call out a slowdown in India’s GDP growth, has now said it expects a repo rate cut of 25bps on Friday, contrary to the consensus view of no change.
According to economists at Nomura, the RBI will move for a rate cut due to weaker growth and the benign one-year forward inflation outlook.
“We don’t see any policy tradeoffs from lowering rates at this stage. We continue to expect 100bp in total cuts by mid-2025 to a terminal rate of 5.50%,” Nomura said.
“We assign a 75 per cent probability to our baseline view of a cut and a 25 per cent likelihood to a policy hold,” it added.
RBI’s primary objective is to maintain price stability (headline CPI at 4%+/-2%), while keeping in mind the objective of growth. “We have long held the view that growth sacrifice was on the rise, due to various factors, including the RBI’s tight monetary policy but comments from the RBI have remained hawkish, focusing on high food price inflation, and this view was further cemented by the high CPI print of 6.2% yoy in October.
However, the sharp slump in Q2 FY25 GDP growth to 5.4% yoy from 6.7% in Q1 is a major setback, even relative to our more cautious expectations,” Nomura said adding that this suggests that GDP growth has already moderated below trend and should mean placing a higher weight on the growth objective of the mandate.