MPC to kick off interest rate cuts this week: Nomura

In contrast to most experts’ expectations that the Reserve Bank of India’s Monetary Policy Committee (MPC) would hold off on interest rate cuts in this week’s policy review in view of high inflation, Nomura’s economists said on Monday they expect the panel to start slashing rates at its December 6 review and pare them by 100 basis points in this cycle. One basis point equals 0.01%.

In a research note titled ‘Higher growth sacrifice calls for frontloaded cuts’, Nomura Securities’ economists Sonal Varma and Aurodeep Nandi also lowered the 2024-25 GDP growth forecast from 6.7% to 6%, and also downgraded next year’s growth prospects to 5.9% from 6.8% projected earlier. The update comes in the wake of GDP growth tumbling to 5.4% in the July to September quarter (Q2), from 6.7% in the first quarter of this fiscal year.

“Slowing consumption and investment growth amid tepid government spending suggest that domestic growth engines are sputtering,” said the economists who were among the first to assert that India has entered a cyclical slowdown in Q2, much before the official growth numbers were released.

While some indicators are ‘provisionally pointing to a revival in sequential momentum’ in Q3, the Nomura India Composite Leading Index points to the start of a longer cyclical slowdown, they noted.

“The moderation reflects a mix of transient factors like a long-drawn monsoon, a pre-festive demand lull and a struggling pace of public capex, which should reverse, as well as more endemic factors such as the ebbing of post-pandemic pent-up demand, slowing income growth, the RBI’s macroprudential tightening and weak private capex,” they noted.