New Delhi [India], October 2 (ANI): The Reserve Bank of India may have limited justification to raise interest rates as core inflation remains benign and economic growth is subdued, while a rate hike may also do little to address pressure on the rupee from global financial conditions, Nuvama Research said in a report.

The report noted that core inflation is below 5 per cent and super-core inflation is below 3 per cent, while nominal GDP growth is running at around 9 per cent, near the lower end of its historical range. It said the domestic backdrop is significantly different from the previous rate-hike cycles in 2018 and 2022.

The report also noted that wholesale price inflation has risen sharply and has stabilised at around 10 per cent in recent months, after remaining subdued through much of 2025.

"Much like Fed, RBI may also commence a rate hiking cycle. But we ask, what will it fix?" Nuvama said, adding that core and super-core inflation were closer to 6 per cent when the RBI started tightening in those earlier episodes, while economic growth was stronger.

The report said the current domestic conditions do not point to a broad-based inflation problem arising from supply shocks. It cited the RBI's assessment that super-core inflation remains contained as "demand pressures remain contained".

Nuvama also examined whether a rate hike could help address pressure on the Indian rupee amid rising global bond yields and capital outflows. It said the pressure is concentrated more in equity outflows than debt flows, with debt flows already positive.

"Therefore, rate hike may not fix that," the report said, cautioning 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," the report further added.

The report's assessment comes against a backdrop of tighter global monetary conditions. It said US Federal Reserve policy is being driven by efforts to contain supply-side inflation, while geopolitical policies are contributing to higher oil prices and inflation.

The report said US policies are "working at cross-purposes", with higher interest rates coming alongside efforts to lower bond yields and growing debt refinancing needs. It warned that this could keep rates higher for longer and increase risks to the US and global economy.

For India, the report said the response to external pressure may not necessarily be further monetary tightening. It argued that a measured depreciation of the rupee could be appropriate amid India's wide goods trade deficit and a more protectionist global environment.

The report also noted that India's overall current account deficit remains benign, even as the goods trade deficit has widened to around 9 per cent of GDP. (ANI)