Nomura Slashes Inflation Forecast as India's Trade Deficit Surprises Higher Amid Global Uncertainty

Nomura Slashes Inflation Forecast as India's Trade Deficit Surprises Higher Amid Global Uncertainty​

India is maintaining resilience in its macroeconomic indicators as Nomura lowers its FY27 inflation forecast while projecting a significant turnaround in the balance of payments. The brokerage has revised down its inflation expectation, citing managed inflation trends despite some recent spikes in commodity prices. These projections suggest that the Reserve Bank of India (RBI) may remain on an extended pause, using underlying disinflation to shield growth momentum.

Nomura Cuts FY27 Inflation Forecast Amid Core Stability​

Nomura recently reduced its forecast for FY27 CPI inflation to 4.6%, marking a reduction from the previous estimate of 5.0%. This projection is lower than the RBI's forecasted figure of 5.1%. The firm anticipates that July inflation will be tracking lower at 4.0% year-on-year (y-o-y).

In June, CPI inflation registered an 18-month high of 4.4% y-o-y, up from 3.9% in May. This rise was primarily attributed to higher retail prices for petrol and diesel, alongside an increase in food inflation. However, the data shows a degree of stability beneath the surface.

Core inflation remained steady at 3.9% year-on-year (y-o-y). Furthermore, super core inflation rose only marginally to 2.5% from 2.3%, indicating that underlying inflationary pressures are being carefully contained.

Merchandise Trade Deficit Surges Higher in June​

The merchandise trade deficit showed a higher surge in June, reaching $30.4 billion, compared to $28.2 billion recorded in May. This shift highlights increasing import demands contrasted with export growth momentum.

Import growth accelerated significantly, rising to 31% y-o-y, driven by robust core imports and elevated oil imports. Meanwhile, exports continued their upward trajectory, growing at 15.5%.

Current Account Deficit Forecast Revised Downward​

Nomura has revised its FY27 current account deficit forecast substantially downward, setting it at 1.2% of GDP, a significant drop from the previous estimate of 1.9%. This revision is predicated on several positive factors anticipated in the economy.

The improvement comes due to lower crude oil prices and measures aimed at attracting foreign capital. These factors, coupled with strong remittances and resilient export performance, underpin the improved deficit projection. The brokerage anticipates that the balance of payments will swing into a surplus exceeding $40 billion in FY27. This is a notable shift from the earlier estimate of around $70 billion deficit.

RBI Expected to Maintain Hold Given Inflation Buffer​

Nomura maintains that Monetary Policy Committee (MPC) members are likely to utilize the buffer offered by subdued underlying inflation during their meetings. The analysis emphasizes that maintaining growth stability will be paramount in policy decisions given ongoing uncertainty in the Middle East.

The brokerage expects the Reserve Bank of India (RBI) to remain on an extended hold, guided by the consistent tracking of inflation below its own FY27 forecast of 5.1%. This sustained view suggests that structural macroeconomic health is being prioritized alongside price stability goals.