Mumbai: Despite the recent depreciation of the Indian rupee, the Reserve Bank of India (RBI) is expected to proceed with interest rate cuts in the coming months, global financial services firm Nomura stated in a recent report.
Nomura highlighted that while the weakening rupee may create concerns about imported inflation, the broader economic context, including moderating core inflation and sluggish domestic demand, supports the case for monetary easing.
“The RBI is likely to prioritize boosting growth over concerns about currency depreciation. The central bank’s focus remains on ensuring that the economy gains sustained momentum,” the report noted.
The Indian rupee has been under pressure recently, touching multi-month lows against the US dollar amid a stronger greenback and outflows from Indian equities. Analysts fear that prolonged currency weakness could increase import costs, particularly for crude oil, and widen the trade deficit.
However, Nomura’s analysis suggests that the RBI may see room to navigate these challenges. “India’s external position is relatively stable, and the central bank has adequate foreign exchange reserves to manage volatility in the currency markets,” the firm added.
The RBI has already maintained a pause on rates for several months but has hinted at adopting a more accommodative stance as inflationary pressures ease. Nomura expects the first rate cut to occur in early 2024, marking a shift toward pro-growth monetary policy.
While the rupee’s weakness could complicate monetary decisions, Nomura believes the RBI is well-positioned to strike a balance between supporting economic growth and maintaining currency stability.
Market participants and policymakers will be closely monitoring upcoming data on inflation, GDP growth, and global economic trends to gauge the central bank’s next move