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Informist, Thursday, Aug. 21, 2025

MUMBAI – Economic growth will likely take a hit if tariffs imposed on India by the US persist, Saugata Bhattacharya, external member of the Reserve Bank of India's Monetary Policy Committee, told news channel CNBC-TV18 Thursday. 

"If the 50% tariffs stay for the rest of the year, this is probably likely to hit growth, that is the long-term conclusion," Bhattacharya said. "...The problem with this is we don't know how much further easing of monetary policy is likely to help."

There were too many uncertainties in the current scenario, which made it best for the MPC to wait and watch, and only take a view on rates when macro-financials evolve, Bhattacharya said. The relative impact of tariffs on India compared to other emerging markets and export competitors was yet to be ascertained, he said. 

Asked about whether the recent proposed reforms in goods and services tax structure would give the MPC more elbow room to cut rates, Bhattacharya agreed, saying that was the reason he stayed neutral at the August policy meeting. The Apr-Jun GDP growth print would be the next critical number to watch out for, he said. 

"My own sense is that it'll be a fairly good (GDP) print, because of the deflator-low CPI and negative WPI," Bhattacharya said. "In case the GDP comes in much worse than what we expect, then that will be a trigger to my mind, on how policy works." 

Bhattacharya said that the 'neutral' stance of the MPC is good and it indicated that the rate-setting panel is not on a "pre-committed" rate cut trajectory. 'Neutral' still means the option of holding on to a pause in rates, or the ability to cut rates in the future, he said. No one thinks that the chances of a rate hike is on the cards, Bhattacharya said. While a rate hike could happen based on how conditions evolve, it is a "tail probability" currently, he said. Bhattacharya said monetary policy needs to be looked at over a longer period, and at how domestic demand conditions evolve, especially given the current level of uncertainty. Inflation shouldn't be looked at by just one print, but over the entire cycle, he said. 

In the minutes of the MPC's August meeting released Wednesday, Bhattacharya said the MPC needs to step back and assess the impact of the rate decisions and other policy actions that have already been delivered. He said that along with the inflation-growth dynamics, the rate-setting panel needs to focus on loan and deposit rates of banks. "...one of the principal objectives of monetary policy easing is to lower borrowing costs to support investment intent and decisions," he said.  End

Reported by Cassandra Carvalho

Edited by Tanima Banerjee and Akul Nishant Akhoury

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