Will Trump Tariffs Impact India's Growth? What RBI Governor Said
RBI on Wednesday kept its policy interest rate unchanged, as policymakers weighed the risks posed by changing global trade policies and the uncertainties surrounding the potential for higher tariffs by the US President Donald Trump's administration.
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RBI maintained the repurchase rate at 5.5 percent with unanimous approval.
New Delhi:
On Wednesday, the Reserve Bank of India (RBI) maintained its policy interest rate, as officials evaluated risks from shifting global trade policies and uncertainties regarding potential higher tariffs under US President Donald Trump's administration. The United States has implemented a 25 percent tariff on all Indian imports beginning Thursday, and threatened substantial increases for New Delhi's continued Russian oil purchases.
Given the global trade uncertainty, the six-member monetary policy committee, led by RBI Governor Sanjay Malhotra, unanimously voted to keep the repurchase rate at 5.5 percent and maintained a 'neutral' stance.
While Malhotra did not directly address US tariff actions, he suggested that predicting their impact on India's economic growth remains challenging.
"External demand prospects remain uncertain amid ongoing tariff announcements and trade negotiations. Headwinds from extended geopolitical tensions, persistent global uncertainties, and volatility in global financial markets present risks to the growth outlook," he stated.
The Central bank adjusted its growth forecast downward from the previous 6.7 percent to 6.5 percent. The RBI Governor noted that some global uncertainties have already been incorporated into the revised growth projection.
"Growth remains robust and aligns with earlier projections, though below our aspirations. Tariff uncertainties continue to evolve. Monetary policy transmission is ongoing," the Governor remarked.
Nevertheless, he explained that despite external challenges, India's domestic economy shows promising prospects in the changing global order, drawing on its inherent strengths, robust fundamentals, and adequate buffers.
"Opportunities are available for taking, and we are creating enabling conditions through a multi-pronged yet cohesive approach to policy making... Despite challenging external conditions, the Indian economy is maintaining steady growth with price stability. Monetary policy has appropriately utilized the policy space created by favorable inflation outlook to support growth without compromising the primary objective of price stability," he said.
The RBI has reduced its inflation forecast for the current fiscal year to 3.1 percent from 3.7 percent earlier, as Malhotra highlighted an expected rise in headline inflation toward year-end.
The Governor emphasized that as India's economy works to achieve its rightful position in the global economy, stronger policy frameworks across domains, not just monetary policy, will be crucial to this journey.
"We will continue being agile and proactive in providing facilitative monetary policy based on incoming data and evolving growth-inflation dynamics. As always, our communication will remain clear, consistent and credible, supported by actions necessary for the task at hand," he added.