Nomura Cuts India's Economic Growth Forecast, Says RBI May Pause on Rates

Nomura Holdings Inc. cut its growth forecast for India and predicted the central bank may raise interest rates this month for the last time in 2010.

Asia’s third-largest economy may expand 8.3 percent in the year ending March 31, less than 9 percent predicted earlier, Sonal Varma, an economist at Nomura, said in a telephone interview from Mumbai today.

Varma expects the Reserve Bank of India to pause its monetary-policy tightening cycle after a quarter-point increase in rates in the next announcement, scheduled for Sept. 16. Governor Duvvuri Subbarao has raised rates four times since mid- March, the most among Asian central banks, to cool inflation.

“Specifically in industrial production numbers, we are expecting some weakness there, on account of lower export numbers,” Varma said. “On the shorter-end, financing conditions have become much more tighter.”

Inflation is already showing signs of cooling in India, with the benchmark wholesale prices climbing 9.97 percent in July, the slowest pace in six months.

Varma said short-term borrowing costs have risen 2.5 percentage points since January and curbed consumer demand. A basis point is 0.01 percentage point.

Subbarao has boosted the central bank’s reverse repurchase rate to 4.5 percent and the repurchase rate to 5.75 percent. Malaysia is second with three moves this year.

India’s industrial production rose 7.1 percent in June, the least in 13 months, while merchandise exports increased 13.2 percent in July, the weakest pace in six months.

To contact the reporters on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net Madelene Pearson in Mumbai at mpearson1@bloomberg.net

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