Nomura Securities predicts that RBI will cut interest rates by 75 bps in fiscal year 25

Nomura Securities predicts that the Reserve Bank of India will cut interest rates by 75 bps from October to fiscal year 25. This is against the backdrop of a slowdown in underlying inflation rates and soft growth in emerging countries, and according to the securities company, the case of shifting the focus to policy mitigation is even stronger.

Regarding India's GDP growth rate, Nomura Securities emphasized the softening of the growth rate along with easing inflation. India's GDP growth rate decelerated from 8.6% in the previous quarter to 7.8%. Nevertheless, Nomura Securities pointed out that the GDP growth rate remains strong, driven by fixed investment, positive contributions from net exports, and a strong industrial and service sector.

However, the securities company further pointed out that data for the second quarter and initial data for the third quarter suggest that growth momentum has weakened slightly.

Consumption indicators in urban areas, such as sales volume of passenger cars and MHCVs (medium and large commercial vehicles), deterioration in corporate performance, and a slowdown in growth in exports and major imported products indicate that growth momentum is weakening.

Nevertheless, Nomura Securities suggests that although terms of trade in rural areas are still low when viewed from historical levels and real wage growth rates in rural areas continue to decline, improvements in rainfall may help rural areas recover.

In the short term, it is estimated that there is a possibility that issues will arise from the fact that private consumption and private capital investment have not recovered widely, the benefits of terms of trade for companies have declined, a decrease in government spending due to election-related factors, and the tightening of macroprudence by RBI.

“However, India's medium-term growth drivers, strong fundamentals, and ongoing reforms are expected to underpin GDP growth of around 7%, 6.9% in FY25, and 7.2% in FY26,” the securities company said.