With consumer demand slowing and concerns being raised over the global economy, some economists say the Reserve Bank of India could consider interest rate cuts despite worries over inflation.

According to economists at Nomura Holdings Inc. and Deutsche Bank AG, economic growth may come under pressure as latest figures show that factory output has slowed and consumers are turning more pessimistic about employment prospects. High borrowing costs are also dampening overall demand in the economy, holding businesses back from investing and curbing growth, they say. 

The RBI has kept interest rates unchanged for more than 18 months. Last week, Governor Shaktikanta Das said that food prices remain a worry and would keep inflation above its 4ewq% target. 

Bloomberg reported that while data Monday showed inflation dipped below that level in July, that was largely due to statistical reasons and unlikely to prompt the RBI to ease interest rates. 

Deutsche’s economist Kaushik Das said it’s “time to focus on growth risks as well,” with the economy increasingly showing signs of stress.

Industrial production figures released Monday showed a slowdown in factory output to 4.2% in June from 6.2% in the previous month, Bloomberg reported. Last week, the RBI revised down its economic growth forecast for the April-June quarter to 7.1% from 7.3%, citing a slower pace of spending by the government and lower than anticipated corporate profitability. Separately, RBI data showed consumer confidence fell for the second consecutive month. 

With private consumption making up about 57%-58% of gross domestic product, the drop in consumer confidence “warrants close monitoring,” Bloomberg quoted Deutsche Bank’s Das as saying. Global growth risks have “risen considerably,” he said, and the RBI must “fine tune the monetary policy decision accordingly.” 

Nomura’s economists say the RBI could move to cut rates as early as October, according to the report by Bloomberg. 

“The combination of softer growth and inflation, high real rates, along with increased degrees of freedom from the expected turn in the global monetary policy cycle indicates that the October meeting is live,” Nomura’s economists Sonal Varma and Aurodeep Nandi wrote in a note. 

However, Morgan Stanley and UBS Group AG argue that the RBI will stay on hold, even if the Federal Reserve begins cutting rates in September. 

“A robust growth cycle with a healthy productivity dynamic driven by capex is expected to remain underway, implying a higher neutral rate,” Morgan Stanley economists led by Chetan Ahya wrote in a note.