All eyes are now on the Reserve Bank of India. The RBI Monetary Policy Committee is scheduled to meet from September 29 – October 1. The RBI paused cutting rates in its previous meeting in August after three consecutive cuts, totalling 100 bps.
The October meeting has become crucial as Trump’s additional tariff of 25% (taking the total to 50 per cent) came into effect on August 27, just days after the August meeting. GST new rates also kicked in on September 22 in a move to boost consumption and increase domestic manufacturing.
The big question is what’s expectation in terms of economic revival and does the RBI see the need for another cut in rates at this juncture?
US tariffs outweigh GST-led consumption boost: Nomura
Nomura believes the RBI has enough space to ease policy now as inflation remains well below 4%. It argues that the negative impact of US tariffs on Indian exports will more than offset the consumption boost from the recent Goods and Services Tax (GST) cuts.
“Low inflation provides the space to boost domestic demand to counter external risks,” Nomura said in its report. It added that current policy rates are restrictive and a coordinated monetary-fiscal response is essential to lift growth. policy transmission works with long lags
Nomura projects GDP growth 6.7%, softer inflation in FY26
Nomura expects the RBI to revise its FY26 GDP growth projection to 6.7% from 6.5 per cent, higher by 20 bps reflecting the stronger-than-expected Q1 data. It also sees inflation being lowered to 2.7% from the RBI’s current forecast of 3.1%, helped by weak food prices and the GST rate rationalisation.
While real GDP growth rose to 7.8% in Q2, the brokerage pointed out that nominal GDP growth moderated, indicating that underlying momentum remains weak. Household balance sheet stress and muted private investment continue to weigh on growth.
Nomura sees 70% chance of October cut
Nomura flagged the risk that the MPC could choose to wait until December to assess the full impact of US tariffs and GST cuts before taking further action. It assigns a 70 per cent probability to a 25 basis point cut in October, and a 30% chance that the RBI holds rates.
Nomura expects the drag from tariffs to outweigh the benefits of GST cuts
Nomura noted that the early signs show that the GST rate cuts announced on September 22 have boosted festive demand, especially for small cars, home appliances and e-commerce products. Rural buyers and premium purchases have also picked up.
However, this demand surge comes after a sharp slump in retail sales in September, where categories such as cars, two-wheelers, electronics, apparel, footwear and FMCG saw steep double-digit declines.
At the same time, exporters, particularly smaller firms, are under pressure from the steep 50 per cent tariffs imposed by the US. Trade data for August already pointed to weaker shipments to the US. If tensions between the two countries do not ease, India could face job losses, factory closures and a slowdown in investments. Nomura expects the drag from tariffs to outweigh the benefits of GST cuts, with the impact showing up in the second half of FY26.
According to Nomura, India now needs a multi-pronged policy response — including support for exporters, regulatory reforms and targeted fiscal and monetary easing — to strengthen growth momentum.