RBI MPC meeting: Will Trump’s tariff war tantrum push the central bank towards a deeper rate cut? Experts weigh in | Stock Market News
Source: Live Mint
RBI MPC meeting: Much has changed since the last meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI). On the positive side, inflation has eased and growth is picking up pace. However, there are rising concerns over the economic fallout of the trade war triggered by US President Donald Trump’s tariff policies.
While deliberating on India’s monetary policy and stance, the RBI’s MPC members must closely assess the impact of the trade war on the country’s growth-inflation dynamics.
The three-day bi-monthly meeting of RBI MPC started on Monday, April 7. The outcome is due on Wednesday, April 9.
In the last policy meeting in February 2025, India’s central bank cut the repo rate by 25 bps for the first time in nearly five years but kept the monetary stance “neutral.”
RBI Governor Sanjay Malhotra indicated that inflation was aligning with the target.
A favourable inflation-growth situation
India’s inflation has fallen below 4 per cent. Consumer price index (CPI)- based inflation, or retail inflation, came at 3.61 per cent in February. March CPI data will be released on 14 April.
The inflation trend is likely to remain subdued for the near term. According to an SBI report, India’s inflation may remain below 4 per cent in the first half of the current financial year (FY26).
“CPI inflation may come down to 3.8 per cent in Q4 FY25 and average to 4.6 per cent in FY25. Average CPI inflation may come to 3.9-4 per cent in FY26, and core inflation should come around in the range of 4.2-4.3 per cent. Vigil is warranted on food inflation with a likely heat wave unfolding,” the SBI report said.
While inflation is easing, economic growth is showing signs of revival. Indian economy is expected to grow at a healthy pace of 6 per cent in FY26. However, monsoons and external shocks remain critical factors determining the country’s growth trajectory.
Trump tariff tantrum
Trump’s announcement of reciprocal tariffs dealt a serious blow to the global economy and markets. While negotiations continue, he shows no signs of backing away from his tariff plans.
SBI Research pointed out that while India may not see a significant direct impact of US tariffs, it cannot escape the collateral impact of the global growth slowdown.
“India’s exports to the US is only about 4 per cent of GDP, so direct impact appears limited though collateral impact from overall global growth slowdown and heightened global financial volatility will take a toll,” said SBI Research.
“Global growth is likely to face significant headwinds due to non-linear yet intersecting trilemma of trade-related tariff barriers, rapid currency swings and fractured capital flows, with no country immune to the disruptions. Factoring in the impact of trade wars, global GDP may see a downside of 30-50 bps in 2025. The global export volume may decline from 2.9 per cent in 2024 to 1.3 per cent in 2025-26,” SBI Research said.
Can RBI go for a deeper rate cut?
With retail inflation at comfortable levels, speculation has risen over whether the RBI may go for a deeper rate cut of more than 25 basis points to support economic growth.
However, experts believe the RBI may not pursue a deeper rate cut at the current juncture, considering the heightened uncertainty caused by the trade war.
“The recent rise in trade tensions, marked by higher tariffs imposed by the United States, has raised concerns about their potential impact on India’s economic growth. A significant 50 basis point rate cut in the near term now appears unlikely,” said Ravi Singh, SVP of retail research at Religare Broking.
Singh expects the RBI to cut the repo rate by 25 basis points this week, as inflation has been brought under control and the rupee has begun to strengthen again. This gives the RBI more room to support growth.
“The central bank is likely to monitor domestic economic indicators closely and may opt for a series of smaller, gradual rate cuts to stimulate growth while keeping inflation in check,” said Singh.
Manoranjan Sharma, Chief economist at Infomerics Valuation and Rating, also believes a 50 bps rate cut is unlikely.
“I don’t think a 50 bps cut is warranted at the present juncture. It must also be realised that this 25 bps cut will come on top of the 25 bps cut effected in April 2025,” said Sharma.
“Easing inflation, the clear need to shore up economic growth, and the evolving growth-inflation trade-off necessitate a 25 basis point cut in the repo rate to 6 per cent, on top of the 25 basis points reduction in February 2025,” said Sharma.
Experts expect a cumulative rate reduction of about 100 bps in the current cycle.
“During February 2025 to March 2026, we expect at least 100 bps cut in repo rate (25 bps already cut in February and another 75 bps rest of FY26), which will transmit exactly the same to EBLR (external benchmark lending rate) and 60 bps in MCLR (marginal cost of funds-based lending rate),” said SBI Research.
Sharma of Infomerics Valuation sees the possibility of a 75-100 bps reduction in the repo rate in FY26.
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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.
