The Reserve Bank of India (RBI) is widely expected to cut the repo rate by 25 basis points on April 9, according to a Moneycontrol poll of 21 economists, treasury heads, and fund managers. This move, despite rising global tensions and fresh tariffs imposed by former US President Donald Trump, is being guided by a combination of moderating retail inflation and weak global growth forecasts.

Global Trade Tensions Not a Game-Changer for RBI

While Trump’s announcement of reciprocal tariffs—including 26% on Indian imports—has stirred concerns about a global trade slowdown, economists believe it won’t significantly affect RBI’s rate decisions in the short term. Gaura Sengupta, Economist at IDFC First Bank, said, “For now, the base case is for two more cuts by RBI (April and June) driven by inflation pressures easing.”

Trump’s tariff policy includes hefty import duties on major global trade partners: 34% on Chinese imports, 20% on EU goods, and 25%-32% on other Asian nations, including India. However, experts assert that India’s export exposure to the US—roughly 4% of GDP—is relatively small, thereby limiting the direct economic fallout.

India’s Growth Concerns Worsen Amid Global Risks

The Indian economy has already been grappling with sluggish growth, and Trump's tariff escalation adds an unwelcome layer of complexity. While there was a rebound in the December 2024 quarter with 6.2% GDP growth, this followed a seven-quarter low of 5.6% in Q2 FY25 (July-September). The recovery, though promising, remains fragile.

SBI Research, in its April 7 report, acknowledged that the direct effect of US tariffs may be limited, but warned that indirect impacts such as weaker global demand and volatile financial markets could hurt India’s export sectors.

Inflation Trends Give RBI Breathing Room

The biggest lever encouraging a rate cut by the RBI is cooling inflation. India’s retail inflation fell to 3.61% in February 2025, a seven-month low, driven primarily by falling food prices, which dipped below 4% for the first time in nearly two years.

Economists agree that lower commodity prices, influenced by weaker global growth projections, will continue to suppress inflationary pressures. Madhavankutty G, Group Chief Economist at Canara Bank, highlighted that Trump’s trade policies will likely push down Brent crude prices, aiding the inflation outlook.

The RBI Governor had already hinted in the February 2025 monetary policy meeting that inflation being below the medium-term target of 4% gives room for accommodative action. He noted that current conditions open policy space to support growth while maintaining inflation alignment.

What’s the Market Expecting on April 9?

The RBI’s Monetary Policy Committee (MPC) is meeting for the first time in the 2025-26 financial year, with a decision due on April 9. The consensus in the market is building around a 25-bps repo rate cut, with the possibility of another reduction in June.

The central bank’s stance is expected to be "growth-supportive" as global uncertainties mount, and domestic economic indicators remain tepid. Inflation projections staying below target only make this decision easier.

Balancing Growth and Price Stability

The RBI is walking a fine line: while its core mandate remains price stability, the current economic climate—with subdued global demand, falling commodity prices, and easing domestic inflation—provides an ideal backdrop to stimulate growth through rate cuts.

Moreover, rate cuts are likely to boost liquidity, support consumer demand, and ease borrowing costs for businesses—factors that are essential for economic momentum in FY26.

Conclusion: Room for Rate Easing Amid Global Trade Challenges

While Donald Trump's protectionist tariff policy may have grabbed global headlines, India’s central bank is likely to stay focused on domestic realities. With low inflation, moderate oil prices, and fragile GDP growth, the RBI is expected to cut rates to support economic expansion in the coming quarters.

The current economic situation demands policy action geared towards revival rather than restraint. All eyes are now on April 9, when the RBI is likely to set the tone for monetary policy in FY26 by initiating the first of possibly two rate cuts.

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