Nomura expects RBI to cut rates in April, but Fed may wait until December

Nomura expects the Reserve Bank of India (RBI) to deliver a rate cut in its April policy meeting, even as the US Federal Reserve is likely to remain on hold until December, according to Robert Subbaraman, Head of Global Macro Research at Nomura Singapore.Subbaraman said the RBI has room to ease, given moderating inflation and falling oil prices. “Inflation is around the RBI target. There’s a lot of room for the RBI to cut rates further. We’re expecting a 25 basis point cut tomorrow and probably a shift from neutral to an accommodative stance,” he said.

The RBI Monetary Policy Committee’s (MPC) is currently meeting and will announce its policy decision on April 9.

Also Read: Interest rates in India may be heading to a three-year lowHe added that the risk around Nomura’s call leans more towards a deeper cut than none at all. “I would say the risk around our call is greater for a 50 basis point cut than no cut at all.”

In contrast, the US Federal Reserve is expected to be far more cautious in the current environment, despite mounting growth concerns. Nomura sees the Fed cutting rates only in December—much later than market expectations.

Subbaraman warned that inflationary pressures in the US are likely to intensify, and the Fed will want to avoid repeating its post-COVID mistake of acting too soon. “The US is facing these stagflation-type pressures—inflation going up, growth going down. We think the Fed is not going to quickly come to the rescue,” he said.

“It would need to see strong evidence of recession before it would be willing to cut rates. So in other words, I’m saying it’s going to be more reactive than proactive to a growth slowdown.”He added that the current tariff war is making things more complicated for central banks. “This tariff war is a negative supply-side shock—like an oil price shock,” he said, drawing a parallel to the inflationary spikes of the 1970s. “You can get into a scenario where you’ve got high inflation expectations, cost-push inflation, and weak growth.”

Also Read: Tariffs may drag US growth to near zero, Fed cuts likely: Citi

Subbaraman noted that in such an environment, the risk of inflation becoming unanchored is real. “If the Fed cuts too soon, it may have to hike very aggressively to get inflation back under control,” he said. “Cutting too early, in my mind, is an even bigger risk.”

While the US economy may avert a full-blown recession, the risk is growing. “Our call is more a significant slowdown to just averting recession,” he said, adding that although surveys point to a slowdown, hard data and balance sheets still suggest some resilience

The risk of retaliatory measures from other major economic blocs looms large. Subbaraman added, “If the EU retaliates, and China is retaliating, that is going to make a much weaker global economy.”

For full interview, watch accompanying video



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