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The Nomura Research Team believes that the Reserve Bank of India (RBI) is likely to cut the key rates by 50 bps in October to December quarter amid a prolonged period of a growth slowdown and inflation worries.

Key quotes

“While stagflation risks may dominate in the short term, they are unlikely to be sustained.

Recent flattening in the mobility curve suggests that sequential growth is stagnating below normal after the initial business resumption, which should have a salutary effect on underlying inflation.

“The latest forward-looking surveys released by the RBI point to a troubling stagflationary outcome. Household inflation expectations (1yr ahead) inched up to an elevated 10.5% in July, levels last seen in 2015-2016.

Consumer confidence, by contrast, remains weak, and while forward expectations have improved, they remain below pre-pandemic levels.”