Nomura has dropped its expectation that the Reserve Bank of India will trim its policy rate in April, citing a stronger inflation outlook following the release of consumer price inflation figures calculated under a revised index and the effect of recent money-market movements that the firm describes as "stealth easing."
The bank adjusted its projection for inflation in the coming fiscal year - which begins in April - to 4.1 percent from a prior estimate of 3.9 percent based on the old CPI series. The revised consumer price series alters the weighting of major items such as food and housing and incorporates several online services for the first time to better capture evolving consumption patterns.
Less than a week earlier, Nomura had assigned a 65 percent probability to the Reserve Bank of India implementing a 25 basis point cut to the policy rate, bringing it to 5 percent. That expectation has been rescinded. Nomura now aligns with other forecasters that no April reduction is likely.
Central to Nomura's reassessment is the view that "stealth easing" toward a 5 percent effective policy stance has effectively already occurred. The brokerage notes that the RBI targets the weighted average call market rate around the repo rate. Over the past few days the call rate has been hovering near 5 percent - the floor of the monetary policy corridor - which, Nomura argues, diminishes the immediate necessity for an on‑the‑books rate cut.
Under the new CPI series Nomura expects a 10 basis point upward revision to its inflation forecast for the January-June period. That upside grows to between 20 and 50 basis points in the second half of the fiscal year, according to the firm.
At the same time, Nomura highlights that one-year forward inflation is expected to slip back below 4 percent, a development that it says mitigates the case for any near-term rate hikes. The RBI's inflation target range remains 2 percent to 6 percent.
While Nomura has withdrawn its probability-weighted view of an April cut, its analysis rests on two linked observations drawn from recent data and market behavior: the statistical impact of the new CPI series on headline inflation readings, and the compression of money-market rates toward the repo floor, which the brokerage interprets as an implicit easing of policy conditions.
Those factors together have led Nomura to conclude that the RBI is more likely to pause than to cut policy rates at its next meeting, absent further changes to the inflation trajectory under the new measurement series.