Slowing growth and easing price pressures may prompt India’s central bank to slash borrowing costs starting in August of this year, said Nomura Holdings Inc. in a note to clients on Friday.
India’s growth is “likely to disappoint at 4.5% in 2023 due to global spillovers, prompting 75 basis point of rate cuts in second half of 2023,” Nomura economists led by Sonal Varma wrote.
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India’s monetary policy makers are expected to wind down hikes after a 25-basis-point move in February, capping the most aggressive tightening cycle since 2011. The central bank has delivered five straight increases since May to take the benchmark rate to 6.25%, the highest in almost four years to rein-in price gains.
Nomura is among the first to forecast such deep rate cuts in 2023, expecting the policy rate to ease to 5.75% by the end of the year in what it refers to as an “out-of-consensus” call. Goldman Sachs in its 2023 outlook for India had predicted 25 basis point rate cut in the Oct.-Dec. quarter.
Last year, Nomura also made an early call for policy tightening when Reserve Bank of India was still referring to price pressures as transitory.
India’s economy grew at a slower pace of 6.3% in the July-Sept. quarter as elevated inflation and rising interest rates tempered demand. “India is no doubt better placed fundamentally,” but weaker export and industrial growth may lead to a slowdown in investment demand, the economists wrote.