RBI may raise rates by just 50 bps by December before pausing: Nomura’s Aurodeep Nandi

Aurodeep Nandi, ED & India Economist at Nomura says the RBI could prioritise growth if core inflation remains manageable, with global yields and the rupee also shaping the policy outlook. The Reserve Bank of India (RBI) may raise the repo rate by only 50 basis points through December before pausing, significantly less than the 125 basis points or more of tightening currently priced in by markets, according to Aurodeep Nandi, Executive Director and India Economist at Nomura. Nandi said the RBI is more likely to recalibrate rates towards neutral or slightly above neutral rather than embark on an aggressive tightening cycle.

While core inflation is rising, it has not yet reached levels that suggest broad-based price pressures, while a weak monsoon and other uncertainties pose risks to economic growth. “So consequently, when you put all of this together, we believe that the right policy medicine for this point of time is sort of increased by 25 basis points,” Nandi said. Nomura expects one 25-basis-point hike in October and another in December, followed by a pause.

Nandi said inflation is not rising sharply enough to require the RBI to slow the economy aggressively, particularly as growth could face pressure from weak rural activity and elevated base effects. “Core inflation is not hasn't really reached a point where it's generalising. So, you don't really need to slow down the economy strongly in order to bring inflation down,” he said.

Global financial conditions will still be an important consideration for the RBI. Nandi said the central bank is watching higher US and global bond yields as the Federal Reserve continues to tighten policy. However, he stressed that the key question for India's rate cycle will be whether core inflation becomes sticky and broad-based.

“If sort of it remains manageable, then and growth risks increase, then the RBI would have to give precedence to that,” Nandi said. The outlook for the rupee also remains challenging. Nomura's FX strategy team expects the rupee to reach around ₹94 per US dollar by the first quarter of calendar 2027, January to March.

Nandi pointed to triple-digit crude oil prices, the Iran war, compressed US-India yield differentials and foreign investor outflows as factors weighing on the currency. The RBI, however, has some ammunition from the foreign currency non-resident (FCNR) deposit flows. Nandi said the central bank can use these inflows to support the rupee, although selling dollars also absorbs liquidity from the system.

Watch the full conversation here For now, Nandi's view is that the RBI is likely to balance inflation against growth rather than respond aggressively to every global or domestic pressure. The trajectory of core inflation and global financial conditions will determine whether the central bank needs to extend the tightening cycle beyond December. Catch all the latest updates from the stock market here Home Economy News RBI may raise rates by just 50 bps by December before pausing: Nomura’s Aurodeep Nandi

Source: CNBC TV18