RBI MPC Meeting: Nomura Predicts Surprise 25 Basis Point Rate Cut By Central Bank

While 42 out of 49 economists surveyed by Bloomberg expect no change, Nomura places a 75 per cent probability on its prediction, signalling strong confidence in a shift toward rate easing

Nomura forecasts a 25 basis point repo rate cut by the Reserve Bank of India in its upcoming Monetary Policy Committee meeting on December 6, according to its latest report. If accurate, this would reduce the benchmark repo rate to 6.25 per cent.

While 42 out of 49 economists surveyed by Bloomberg expect no change, Nomura places a 75 per cent probability on its prediction, signalling strong confidence in a shift toward rate easing. The brokerage also anticipates 100 basis points in rate cuts by mid-2025, bringing the repo rate to 5.50 per cent.

Nomura attributed its expectation of a rate cut to a sharp slowdown in India’s GDP growth and a subdued inflation outlook. The country's GDP growth for the second quarter of this fiscal year dropped to 5.4 per cent year-on-year, down from 6.7 per cent in the first quarter, signalling a marked decline in private demand.

"Growth has already moderated below trend," observed Nomura analysts, emphasising the need for the RBI to prioritise its growth mandate over inflation concerns.

Although consumer price inflation surged to 6.2 per cent in October, Nomura pointed out that the increase is primarily driven by specific categories, such as vegetables and edible oils, while core inflation remains subdued. With 64 per cent of the CPI basket showing inflation below 4 per cent, the brokerage argues that the inflationary pressures are not widespread.

Nomura dismissed concerns that a rate cut would destabilise the rupee or further fuel inflation, instead highlighting that the RBI's unsterilised forex interventions are tightening liquidity and worsening growth challenges. "Without signs of growth stability, external sector pressures will continue," the brokerage noted. For the upcoming meeting, Nomura expects the RBI to revise its growth forecast down from 7.2 per cent to around 6.5 per cent while slightly raising its inflation projection to 4.8 per cent. However, the central bank may forecast a more optimistic outlook for the year ahead, with growth rebounding to 7 per cent and inflation aligning closer to its 4 per cent target.

Nomura sees this anticipated rate cut as the beginning of a broader easing cycle rather than a one-off move. "The growth sacrifice is already significant, and moving to neutral policy rates won't suffice," the firm stated, emphasising the need for more aggressive cuts to stabilise the economy.