India Central Bank May Cut Rates Despite Rupee Weakness and Inflation Concerns

Nomura has upheld its forecast that the Reserve Bank of India (RBI) will reduce interest rates by 25 basis points, despite concerns about the recent depreciation of the rupee and the increase in inflation.

The firm argues that worries about economic growth are more significant than concerns about inflation, even as the rupee continues to reach record lows due to portfolio outflows and the strength of the US dollar following the US elections.

While retail inflation has exceeded the RBI's tolerance threshold for the first time in over a year, Nomura highlights that the inflationary pressures are mainly concentrated in specific categories, particularly food. Excluding volatile items such as vegetables, inflation remains subdued, indicating that a rate cut may still be considered.

In contrast, a majority of economists surveyed in a Reuters poll expect the RBI to maintain the current interest rates despite these economic challenges.

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