Prime Highlights
- US tariff hikes can lower India’s GDP growth and add more pressure on the rupee.
- The RBI can cut interest rates in August to stimulate economic momentum, say analysts.
Key Fact
- India’s retail inflation fell to a six-year low of 2.1% in June.
- It adds to the case for an RBI policy rate cut.
Key Background
The Reserve Bank of India (RBI) is coming under increased external pressures as new US tariff rises on Indian goods now pick up. The new 25% tariff on a variety of prominent Indian products will be directed towards suppressing export revenues and reducing economic pace. The economists project that such actions will close off 20–40 basis points of India’s GDP growth during the next quarters.
This comes against the backdrop of domestic inflation hitting a six-year low. The Consumer Price Index in June fell to a low of 2.1%, giving the RBI a rare chance to divert focus to growth support without sounding inflation alarm. Given inflation is likely to stay below 4% in the near future, some economists believe that the central bank has room to carry out accommodative policy action.
While the majority of economists believe the RBI is likely to leave the benchmark repo rate at 5.50% in its next Monetary Policy Committee (MPC) meeting, there is a shrinking minority that is increasing to expect a rate cut. Banks such as Nomura and SBI Research have already suggested the likelihood of a 25-basis-point repo rate cut, which is extremely likely to happen in August, as a move to counter the tariff shock as well as to spur domestic demand.
Market indicators also reflect this uncertainty. The Indian rupee has depreciated to its lowest level since February, trading at around ₹87.54 per US dollar. Bond yields have shown mild upward pressure, hinting at investor caution and expectations of policy response. Amid these dynamics, the RBI’s stance will be critical in safeguarding economic resilience while navigating trade-related turbulence.
