RBI growth estimate “too optimistic”, will pivot to rate cuts in October: Nomura
The Hindu
Japanese brokerage Nomura on Friday said Reserve Bank of India’s (RBI) 6.5 per cent real GDP growth estimate for FY24 is “too optimistic”, and the Central Bank will pivot to rate cuts from October.
Japanese brokerage Nomura on Friday said Reserve Bank of India's (RBI) 6.5 per cent real GDP growth estimate for FY24 is “too optimistic”, and the Central Bank will pivot to rate cuts from October.
The brokerage said it agrees with the RBI’s projections on price rise, and said that the worst of headline inflation is behind us.
"However, the revised GDP growth forecast of 6.5 per cent in FY24 appears too optimistic,” the brokerage said, adding that it estimates growth to slow down to 5.3 per cent.
A slew of agencies and analysts has cut the FY24 growth forecasts in the recent past, with many of them pegging it under 6 per cent as well.
Nomura said it expects a downside of over 1 percentage point to the RBI's growth estimate on weaker global growth, high uncertainty and the lagged effects of domestic policy tightening.
The RBI had attributed the upward revision in growth to a dip in crude oil prices to $85 per barrel as against $90 per barrel.
After announcing the policy, Governor Shaktikanta Das on Thursday said that the policy call is a pause on rates, and not a pivot, and made it clear that the RBI will not hesitate to act if it sees any risks.
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The Union Budget unveiled on February 1, 2025, has come at a time of unprecedented global uncertainty and a flagging domestic economy. The real GDP growth is estimated at 6.4% for 2024-25 and between 6.3-6.8% for 2025-26, a far cry from >8 percent growth required annually to make India a developed nation by 2047. While much attention has been devoted to the demand stimulus through income tax cuts, not enough is said about the proposed reforms in urban development, tariff rationalisation, and regulatory simplification aimed at making Indian cities and corporates more competitive. Since the majority of economic activity is located in cities (urban areas account for ~55% of GDP) and produced by large corporates (~40% of the national output and 55% of India’s exports), the above-mentioned reforms have a pivotal role in improving India’s trend growth rate. Below we unpack each reform.
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