Persisting uncertainties on India-US trade policies continue to pose downside risk while the inflation outlook for the near term has become more benign than anticipated, the Reserve Bank of India’s (RBI) bulletin has said.
Indian exports to the US now face a 50 percent tariff after President Donald Trump’s additional 25 percent penalty for buying Russian oil came into effect on August 27. The penalty is over and above the so-called reciprocal tariff of 25 percent.
The August bulletin said favourable rainfall and temperature bode well for the kharif season. An increase in real rural wages may support demand in the second half of the financial year.
Coupled with the benign financial conditions, ongoing transmission of rate cuts, supportive fiscal measures and rising household optimism, the environment is conducive for holding up aggregate demand, bulletin added.
The headline inflation, driven by muted food price pressures supported by favourable base effects, is likely to soften further below the 4 percent target in Q2 before inching up in the last quarter of the fiscal.
Overall, the average headline inflation this year is expected to remain significantly below the target.
Monetary policy would continue to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path, bulletin added.
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