Nomura maintains its prediction that the Reserve Bank of India (RBI) will cut interest rates by 25 basis points, despite concerns over inflation and the weakening rupee.

The bank's outlook is based on a benign one-year forward inflation forecast, indicating that economic growth concerns are prioritized over inflationary pressures. While most economists surveyed in a Reuters poll expect the RBI to keep rates unchanged, Nomura points out that the recent increase in retail inflation is mainly driven by specific items, particularly food. Excluding volatile categories like vegetables, inflation remains low, supporting the case for a rate cut.

The decline of the rupee, attributed to portfolio outflows and the strength of the US dollar after the US elections, further complicates the economic situation.