Nomura sees 75 basis point rate cuts in 2023 as GDP slows in India

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.

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.