Will Trump Tariffs Impact India's Growth? What RBI Governor Said

The Reserve Bank of India (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. The  United States has imposed a 25 per cent duty on all Indian goods entering the US starting Thursday, and has threatened to substantially hike the tariff for New Delhi's continued purchase of Russian oil.

Considering global trade uncertainty, the six-member rate-setting panel, headed by RBI Governor Sanjay Malhotra, held the repurchase rate at 5.5 per cent in a unanimous vote and decided to continue with a 'neutral' stance.

Malhotra did not directly speak about US tariff actions, but said but he indicated that it is difficult to predict their impact on India's growth.

"Prospects of external demand remain uncertain amidst ongoing tariff announcements and trade negotiations. The headwinds emanating from prolonged geopolitical tensions, persisting global uncertainties, and volatility in global financial markets pose risks to the growth outlook," he said. 

The Central bank reduced its growth forecast, which was earlier 6.7 per cent, to 6.5 per cent. The RBI chief said some of the global uncertainties have already been factored into the revised growth forecast.

"Growth is robust and as per earlier projections, though below our aspirations. The uncertainties of tariffs are still evolving. Monetary policy transmission is continuing," the Governor said.

However, he explained that despite external challenges, India's domestic economy is showing bright prospects in the changing world order, drawing on its inherent strength, robust fundamentals, and comfortable buffers.

"Opportunities are there for the taking, and we are making all efforts to create enabling conditions through a multi-pronged yet cohesive approach to policy making...Despite a challenging external environment, the Indian economy is navigating a steady growth path with price stability. Monetary policy has appropriately used the policy space created by the benign inflation outlook to support growth without compromising on the primary objective of price stability," he said.

The RBI has lowered its inflation forecast to 3.1 per cent for the current fiscal year from 3.7 per cent earlier, as Malhotra flagged a rise in headline inflation towards the end of the year.

The Governor stressed that as the Indian economy strives to attain its rightful place in the global economy, stronger policy frameworks across domains, and not just limited to monetary policy, will be pivotal in its journey. 

"We, on our part, will continue to be agile and proactive in providing a facilitative monetary policy based on incoming data and the evolution of the growth-inflation dynamics. As always, we will have a clear, consistent and credible communication backed by actions necessary for the task at hand," he added.