Title: Nuvama Says RBI Rate Hike May Have Limited Justification as Core Inflation Stays Benign
The Reserve Bank of India may have limited justification to raise interest rates, with core inflation benign and economic growth subdued, Nuvama Research said in a report released on Friday, October 2. A hike would also do little to address pressure on the rupee from global financial conditions, the brokerage argued.
The report noted that core inflation is running below 5 per cent and super-core inflation below 3 per cent, while nominal GDP growth is near 9 per cent — close to the lower end of its historical range. That backdrop, Nuvama said, is significantly different from the RBI's previous tightening cycles in 2018 and 2022, when core and super-core inflation were closer to 6 per cent and growth was stronger.
What will a hike fix?
"Much like Fed, RBI may also commence a rate hiking cycle. But we ask, what will it fix?" the report said. Nuvama argued that current domestic conditions do not point to a broad-based inflation problem driven by supply shocks, citing the RBI's own assessment that super-core inflation remains contained as "demand pressures remain contained."
On the rupee, the report said the pressure is concentrated more in equity outflows than debt flows — and debt flows are already positive — so a rate hike may not fix the currency's weakness. It cautioned that any slowdown in growth caused by higher rates could instead hurt equity flows further. "A rate hike would have been more appropriate in our view if underlying core inflation trends too were out of whack and fiscal policy was running loose. Neither is true as of now," Nuvama added.
Global backdrop and the trade deficit
The assessment comes against tighter global monetary conditions, with US Federal Reserve policy driven by efforts to contain supply-side inflation and geopolitical policies contributing to higher oil prices, the report said. For India, the response to external pressure may not necessarily be further monetary tightening: Nuvama argued that a measured depreciation of the rupee could be appropriate amid India's wide goods trade deficit — about 9 per cent of GDP — and a more protectionist global environment. The overall current account deficit remains benign, it noted.
The report also flagged that wholesale price inflation has risen sharply and stabilised at around 10 per cent in recent months, after staying subdued through much of 2025.
Sources: The Tribune (ANI) — "RBI rate hike may have limited justification amid benign core inflation, subdued growth: Nuvama" (https://www.tribuneindia.com/news/b...-benign-core-inflation-subdued-growth-nuvama/)
The Reserve Bank of India may have limited justification to raise interest rates, with core inflation benign and economic growth subdued, Nuvama Research said in a report released on Friday, October 2. A hike would also do little to address pressure on the rupee from global financial conditions, the brokerage argued.
The report noted that core inflation is running below 5 per cent and super-core inflation below 3 per cent, while nominal GDP growth is near 9 per cent — close to the lower end of its historical range. That backdrop, Nuvama said, is significantly different from the RBI's previous tightening cycles in 2018 and 2022, when core and super-core inflation were closer to 6 per cent and growth was stronger.
What will a hike fix?
"Much like Fed, RBI may also commence a rate hiking cycle. But we ask, what will it fix?" the report said. Nuvama argued that current domestic conditions do not point to a broad-based inflation problem driven by supply shocks, citing the RBI's own assessment that super-core inflation remains contained as "demand pressures remain contained."
On the rupee, the report said the pressure is concentrated more in equity outflows than debt flows — and debt flows are already positive — so a rate hike may not fix the currency's weakness. It cautioned that any slowdown in growth caused by higher rates could instead hurt equity flows further. "A rate hike would have been more appropriate in our view if underlying core inflation trends too were out of whack and fiscal policy was running loose. Neither is true as of now," Nuvama added.
Global backdrop and the trade deficit
The assessment comes against tighter global monetary conditions, with US Federal Reserve policy driven by efforts to contain supply-side inflation and geopolitical policies contributing to higher oil prices, the report said. For India, the response to external pressure may not necessarily be further monetary tightening: Nuvama argued that a measured depreciation of the rupee could be appropriate amid India's wide goods trade deficit — about 9 per cent of GDP — and a more protectionist global environment. The overall current account deficit remains benign, it noted.
The report also flagged that wholesale price inflation has risen sharply and stabilised at around 10 per cent in recent months, after staying subdued through much of 2025.
Sources: The Tribune (ANI) — "RBI rate hike may have limited justification amid benign core inflation, subdued growth: Nuvama" (https://www.tribuneindia.com/news/b...-benign-core-inflation-subdued-growth-nuvama/)
