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Informist, Wednesday, Aug. 5, 2026

 

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--RBI Malhotra: US effective tariff rates are much lower 
--RBI Malhotra: Impact of US tariff will likely be much lower than expected 
--RBI Malhotra: Target is headline CPI, not core inflation 
--RBI Malhotra: Core inflation up due to variety of reasons 
--RBI Malhotra: Will take apt policy action if core inflation warrants it 

 

NEW DELHI – The Reserve Bank of India's Monetary Policy Committee will take appropriate policy action if core inflation warrants it, especially with the expectation that core inflation excluding precious metals can align with the core inflation level towards the end of the financial year, RBI Governor Sanjay Malhotra said Wednesday. "Underlying core inflation -- core minus precious metals -- is going up. Whatever benign inflation we were in is not there going forward. We are watching out for that," Malhotra said in the post-policy press conference.

 

Core inflation excluding precious metals leaves behind manufactured goods, services, housing, clothing, and transportation, metrics that tend to go high due to domestic demand-driven price pressures and second-order effects of higher energy costs.

 

Earlier in the day, the governor said the underlying inflation, reflected by core inflation, excluding precious metals, which has been benign for some time, is set to align with core inflation towards the end of the financial year. As per the latest data, headline CPI was 4.38% in June, breaching the RBI's 4% target after 17 months, primarily due to high food and fuel prices -- which tend to be volatile. Core inflation remained at 4.1% in June and core inflation excluding precious metals remained further lower around 2.3-2.5%, the RBI said.

 

While concerns have grown over the likely higher core inflation, the governor said the Monetary Policy Committee's framework is clear and remains the same -- the target is headline inflation, not core or core excluding precious metals. "We will continue to be guided by the headline inflation, and it is our endeavour to bring headline inflation in line with the target in the medium term," he said. 

 

The RBI's rate-setting panel Wednesday left the policy repo rate unchanged at 5.25% in a unanimous decision while retaining the "neutral" policy stance despite inflation likely to be higher in the near term. Malhotra said there was a need for greater clarity on inflation -- its path and composition -- before taking any policy action.

 

The central bank cut the outlook for the financial year 2026-27 (Apr-Mar) headline inflation by 10 basis points to 5.0?rlier in the day even as uncertainties led by El Nino weather phenomenon and the war in West Asia continue to linger. Volatile oil prices and their second-round effects continue to pose downside risks, Malhotra said, adding that inflation was seen rising in the near term. The central bank also cut the inflation forecast for Jul-Sept by 40 bps to 4.7%.

 

Speaking about US tariffs, Malhotra said the current inflation projections take into account the tariffs imposed by Washington. The US is India's largest export destination and, currently, Indian goods attract 18% tariff, along with an additional 10% for New Delhi's failure to entirely prohibit the import of goods produced with forced labour.

 

Malhotra said that effective tariffs imposed by the US on India are not "as much", thanks to sector-specific or country-specific exemptions. "And so the impact may not be as high as the headline tariffs may suggest," he said. Besides, the effective tariff could be further lowered under the bilateral trade agreement that is under discussion, he said. 

 

Negotiations for the trade pact have seen many ebbs and flows, with the two countries having major differences over opening up India's sensitive agriculture sector to Washington's genetically modified products. The Donald Trump administration's steep reciprocal tariffs and Section 301 probe against India on the failure to effectively prohibit the import of goods manufactured using forced labour have added to the complexity of finalising a deal.

 

The two countries had on Feb. 7 issued a joint statement agreeing on a framework for an interim agreement for mutually beneficial trade but are yet to finalise the first phase of the agreement. India and the US had total trade of $132.14 billion in FY26, with India exporting $86.51 billion in goods to the US and importing $45.63 billion from the world's largest economy.  End

 

US$1 = INR 95.15

 

Reported by Priyasmita Dutta

Edited by Rajeev Pai

 

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