RBI Growth Estimate ‘Too Optimistic’, Will Pivot To Rate Cuts In October: Nomura

On Friday, Japanese brokerage Nomura said the Reserve Bank’s 6.5% real GDP growth estimate for FY24 is “too optimistic”, and the central bank will pivot to rate cuts from October.

The brokerage said it agrees with the Reserve Bank’s projections on price rises and said that the worst of headline inflation is behind us.

“However, the revised GDP growth forecast of 6.5% in FY24 appears too optimistic,” the brokerage said, adding that it estimates growth to slow down to 5.3%.

A slew of agencies and analysts have cut the FY24 growth forecasts in the recent past, with many of them pegging it under 6% as well.

Nomura said it expects a downside of over 1 percentage point to the RBI’s growth estimate due to weaker global growth, high uncertainty, and the lagged effects of domestic policy tightening.

The RBI had attributed the upward revision in growth to a dip in crude oil prices to $85 per barrel as against $90 per barrel.

After announcing the policy, Governor Shaktikanta Das said on Thursday that the policy call is a pause on rates, not a pivot, and made it clear that the RBI will not hesitate to act if it sees any risks.

In the note, the brokerage said the RBI is likely to pause in June as well, saying the central bank will take time to assess the impact of its past rate hikes, where it has raised rates by 2.50% in the last 11 months.

“Beyond June, we expect inflation to marginally undershoot and a more significant disappointment on growth,” the brokerage said.

The risks to its estimate of a rate cut in October appear skewed towards an action earlier than expected, it said.

The brokerage said the six-member Monetary Policy Committee surprised markets by unanimously voting to pause in the April meeting while retaining its stance of “withdrawal of accommodation” on Thursday.