The Reserve Bank of India has announced no change in the repo rate today, citing resilient growth and adopting a wait-and-watch approach to allow full transmission of the 100 basis points cut implemented over the previous three consecutive meetings. However, Nuvama believes that weakness in the rupees might have also influenced the RBI’s decision.
Nuvama says the case for more cuts is strong
Nuvama believes that the conditions remain favourable for further monetary easing. “We think the case for further rate cuts remains compelling. Domestic demand is weak (seen across money, capex and consumption indicators); inflation is benign (pricing power missing) and global uncertainty is high (poses downside risks). However, timing of further rate cuts may depend on how soon the Fed resumes easing.”
RBI sees growth as ‘resilient’ but Nuvama is not convinced
RBI retained its GDP growth forecast for FY26 at 6.5 per cent year-on-year, citing strength in services and construction, along with support from a strong monsoon. The central bank also pointed to robust government capital expenditure and improved financial conditions as factors that could sustain domestic demand.
But Nuvama argued that the RBI is being too optimistic. “Activity has slowed notably versus a year ago,” the firm noted. It highlighted subdued revenue and profit growth among companies, sluggish household income and credit growth, and weak tax collections, all of which are likely to weigh on overall economic momentum.
“Corporate and household slowdown, in turn, is weighing on government tax collections (growth below 10% now), which could keep government spending in a slow lane,” Nuvama said.
Nuvama flags muted core inflation
The RBI has revised down its inflation forecast for FY26 to 3.1 per cent from 3.7 per cent, following lower-than-expected consumer prices in the first quarter. However, the central bank expects inflation to rise above 4 per cent later in the year due to a low base effect.
Despite the downward revision, the RBI maintained a neutral policy stance — a move Nuvama called surprising. “Core inflation (excluding commodities) has been hovering below 4 per cent for a long time, and pricing power remains muted. Finally, global trade wars may be inflationary from a US standpoint but could be deflationary for the rest of the world,” it noted.
Nuvama expects RBI to resume rate cuts once Fed signals global easing
Nuvama expects the RBI to resume rate cuts, in line with other global central banks that are currently on pause. “Perhaps the next round of global easing will begin once the Fed resumes easing,” the brokerage said. “When that happens, we expect more rate cuts from the RBI,” Nuvama added, reiterating that the current growth-inflation dynamics support further monetary easing.
Nuvama also highlights that it is not just the RBI that has paused for now, but several other central banks — in Europe, Canada, Australia, and elsewhere — have also signalled a pause. “We believe the domestic growth-inflation mix, along with the evolving global environment, warrants further monetary easing, both globally and in India,” it said.