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Informist, Wednesday, Apr. 9, 2025

 

--RBI Malhotra: Have comparative advantage vs other nations on US tariffs 
--RBI Malhotra: Tariff restrictions by US certainly a growth dampener 
--RBI: US tariffs impact on India inflation outlook uncertain at the moment 
--RBI: US tariffs likely to adversely impact India's net external demand 
--RBI: India's relative tariff advantage over peers may contain US tariff hit 
--RBI: Tariff uncertainty may lead to pressure on rupee, imported inflation 
--RBI Malhotra: Recent trade tariff measures a headwind for global econ 
--RBI Malhotra: Recent trade tariff measures have exacerbated uncertainties 
--RBI Malhotra: Don't see high concern for India inflation from tariffs 
--RBI Malhotra: Higher tariffs will hurt net exports 
--RBI Malhotra: India very proactively engaging with US on trade agreements

 

 

MUMBAI – The Reserve Bank of India does not see the impact of the tariffs imposed by US that came into effect Wednesday as a major concern for India's inflation outlook, Governor Sanjay Malhotra said, detailing the outcome of the Monetary Policy Committee meeting. "Overall, while global trade and policy uncertainties shall impede growth, its impact on domestic inflation, while requiring us to be vigilant, is not expected to be of high concern," Malhotra said.

 

The governor said risks to inflation are two sided. "On the upside, uncertainties may lead to possible currency pressures and imported inflation. On the downside, slowdown in global growth could entail further softening in commodity and crude oil prices, putting downward pressure on inflation," he said. The RBI has slashed its headline inflation forecast for the quarter ending June by 90 basis points to 3.6%, while lowering the projection for 2025-26 (Apr-Mar) by 20 bps to 4.0%.

 

However, the central bank has cut its GDP growth projection for FY26 to 6.5% from 6.7%, highlighting concerns on growth after the imposition of the tariffs. "Uncertainty in itself dampens growth by affecting investment and spending decisions of businesses and households.... the dent on global growth due to trade frictions will impede domestic growth," the Governor said. US President Donald Trump had announced tariffs against all major trading partners, slapping a 26?justed tariff on imports from India even as bilateral trade talks continue.

 

The higher tariffs will also have a negative impact on net exports, Malhotra said in his statement. "...higher tariffs shall have a negative impact on net exports. There are, however, several known unknowns - the impact of relative tariffs, the elasticities of our export and import demand; and the policy measures adopted by the government including the proposed Foreign Trade Agreement with the US, to name a few. These make the quantification of the adverse impact difficult." he said.

 

The Monetary Policy Committee, which met Monday to Wednesday, unanimously decided to cut the policy repo rate by 25 basis points to 6.0%. The panel also voted to change the policy stance to 'accommodative' from 'neutral' adopted in October.

 

The monetary policy report released by the RBI earlier on Wednesday also talked about how reciprocal tariffs by the US administration and associated policy uncertainty pose headwinds to global growth and inflation. The tariffs will adversely impact India's net external demand, but the country's relative tariff advantage over its peer economies may contain the impact, the report said.

 

While India cannot remain immune to these developments, the progress achieved on the disinflation front gives headroom to the monetary policy to focus on balancing the growth-inflation outcome, the report said. The exact impact of the tariffs on inflation outlook remains uncertain, it said. However, rising trade protectionism, currency war threats, and higher international crude oil prices are also some of the factors that may exert downward pressure on the Indian rupee and may lead to imported inflation, it said.

 

In the post monetary policy press conference, the governor said that even though India has a comparative advantage to its peers when it comes to the tariffs, they are still a dampener for India's growth. "Impact of tariffs will be different for different countries, depending on the situation they are in. For India, we have reduced growth rate by 20 basis points for this year primarily arising out of these uncertainties," he said.  End

 

Reported by Kabir Sharma

Edited by Ashish Shirke

 

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