Nomura Eyes 25 Bps Rate Cuts In RBI's October, December MPC Meetings

Nomura believes the RBI will likely reduce both its FY26 forecasts, on GDP growth and CPI inflation. "We expect 25 bps cuts in each of the October and December meetings, taking the policy rate to a terminal rate of 5%," it added.

Nomura highlighted that Trump tariffs should trigger next leg of rate cuts. "MPC members have reiterated that the 'neutral stance' allows them to be data-dependent, which by our interpretation, suggests that the door has been left open for future policy easing," it added.

The brokerage further noted that RBI's August MPC meeting’s minutes show rate cut cycle is highly sensitive to ongoing trade tensions.

"The MPC meeting minutes show that the members expressed worries over Trump tariff escalations, amid concerns about growth headwinds and see lower inflation as offering space for policy easing-which chimes with our view that the August pause was largely tactical," it added.

The MPC minutes show that three key factors were behind the pause in August - the uncertainty over trade tensions, the willingness to wait for the monetary policy transmission of existing easing, and concerns about base effect-induced rise in inflation above the RBI's 4% target in H1 2026.

External member Professor Nagesh Kumar estimated that the tariffs could hit India's GDP growth rate by 0.2-0.3 pp, hoping that the penal tariffs did not kick in, and the baseline tariffs would be brought down to levels enjoyed by other Asian countries.

RBI members, Rajiv Ranjan and Deputy Governor Poonam Gupta highlighted that the Indian economy has been resilient so far despite the trade related uncertainties, suggesting that their base case is still that growth will remain unscathed by the trade tensions.

The brokerage added that the MPC's 'wait and watch' view will likely be satisfied by the October meeting, with much more clarity on Trump's tariffs and the monetary policy transmission of existing easing largely over.