After a 90-day pause in tariffs by US for all countries except China, Tata Asset Management's Murthy Nagarajan believes it is things as usual for the global economy except for China. "China will live through the pain as other countries pick up market share from China. American consumers need to pay more," he said in an interview to Moneycontrol.
After tariffs, according to him, the growth in US may suffer in the short term, but US may not enter recession conditions.
"There are many countries who are ready to supply to US the products which are made in China. There could be some short-term problem, but the US will become stronger in the long run," said the Head-Fixed Income at Tata Asset Management, who has more than 2 decades of experience in the financial service industry.
Considering the US imposing 145% tariff on China, do you see significant disruption in global growth and supply chain?
Global supply will have some disruption, but it will not lead to higher inflation.
The US has decided to pause tariff hikes for all countries except China (which attracts 145% tariff rate now) for 90 days, but negotiation will continue. Do you think the risk temporarily eased for global trade but remained going ahead?
It is things as usual for the global economy except for China. China will live through the pain as other countries pick up market share from China. American consumers need to pay more. Other countries will need to buy more from the US to reduce the tariff rates applicable to them. Chinese will play the waiting game and negotiate with the next president.
Do you expect tariff rates to get adjusted significantly in the coming weeks?
US has indicated, they will work with all partners who have not imposed additional tariffs on US goods. US has kept the door open for reduction in tariffs for all the nations, who are ready to negotiate.
If the US defends its tariff rates and there is no major change in tariffs even after negotiations, do you foresee a high chance of the US entering a recession?
US share of imports is low compared with the overall GDP of the country. The growth in US may suffer in the short term, but US may not enter recession conditions. There are many countries who are ready to supply to US the products which are made in China. There could be some short-term problem, but the US will become stronger in the long run.
Do you think the US Federal Reserve will maintain a dovish stance to stabilize economic activity?
US Federal Reserve is interested to bring CPI inflation down, which is expected to increase due to the imposition of tariffs. The immediate impact will be higher CPI inflation but growth slow down in coming months means US Federal Reserve will prioritise growth over CPI inflation. The Federal Reserve may look at a dovish tilt after the second quarter GDP data, which should capture the effect of tariffs on employment opportunities.
What is your take on the RBI policy and do you expect another 50-75 bps repo rate cut in remaining part of 2025?
RBI changed its stance to accommodative while cutting the repo rates by 25 basis points. RBI Governor has indicated they will keep liquidity in surplus to the extent of 1 percent of NDTL and next move in rates will be a cut or maintenance of status quo in policy. The GDP growth forecast has been lowered to 6.5 from 6.7 percent and CPI inflation is expected to be 4 percent instead of the 4.2 percent indicated earlier. RBI targets to keep Repo rates above the expected CPI inflation to induce positive real rates.
RBI working papers indicate 1.5 percent real rates. This translates into 5.5 percent repo rates assuming CPI inflation stays around 4 percent levels. RBI Governor stated food and CPI inflation are coming down on a durable basis and aligning with target of 4 percent on a sustainable basis. At the present juncture, CPI inflation is below RBI target of 4 percent with Brent oil trading at 60 dollar per barrel against RBI estimated of 70 dollar per barrel. RBI is expected to cut rates by 50 basis points and further cut of 25 basis points is possible to support growth if CPI inflation stays below 4 percent levels.
Do you expect the possibility of RBI lowering full year growth forecast (FY26) further to below 6.5%?
Global growth is expected to suffer due to imposition of tariffs. Indian economy is expected to face headwinds due to uncertainty of demand, which should lead to lower capacity additions in the economy. GDP growth for this year and next year should be affected and come in the 6 percent range compared with 6.5 percent indicated by RBI.
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