Nomura expects inflation in the July-September quarter to average around 4.4 percent, lower than the Reserve Bank of India’s (RBI) forecast of 4.6 percent.
The financial services company report came on the day government data showed that CPI fell to 4.25 percent in May, the lowest in 25 months, from 4.7 percent in April.
The financial services company said in a report on June 12 that it expects Consumer Price Index (CPI) inflation to remain in check despite the El Nino risk as it expects the government to intervene and balance demand and supply in the country, Nomura said.
The global weather-changing phenomenon El Nino, characterised by warmer ocean temperatures across the Pacific, has returned after seven years. The warmer weather pattern has often been associated with deficient monsoon rains in India, raising inflation worries.
Nomura analysts said lower manufacturing cost and cooling fuel prices in the coming months are also the reason for the lower CPI forecast.
They expect inflation for FY24 to be around 4.7 percent, again lower than the RBI’s forecast of 5.1 percent for the same period.
Also read Inflation numbers in line with expectations, but uncertainty still remains, say experts
Headline and core inflation for June will be similar to May or a shade lower, Nomura said.
Its vegetable basket, which comprises onion, tomato, and potato, grew 5.8 percent month-on-month in June so far, as compared to 4.3 percent in May.
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The research house is also seeing an increase in the prices of eggs, pulses, milk and sugar in June. Cereal prices are picking up in June, led by wheat and flour prices. Kerosene price is lower in June as compared to May, while petrol and LPG remain unchanged.
The Consumer Price Index (CPI) for May fell to 4.25 percent in May as compared with 4.7 percent in April.
Also read: CPI inflation drops to 4.25% in May, lowest in 25 months
Lower inflation in May and a higher Industrial production of 4.2 percent in April implies a rate pause for now, Nomura said. It expects a cumulative 75 basis points rate cuts, taking the repo rate to 5.75 percent by March 2024. The repo rate is at 6.5 percent.
Nomura expects GDP growth to slow down to 5.5 percent year-on-year in FY24, which is lower than RBI’s GDP growth projection of 6.5 percent for FY24.
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