RBI’s rate action may face growing uncertainty amid US tariff worries, say economists

Reserve Bank of India

The Reserve Bank of India's (RBI) monetary policy actions outlook is turning increasingly unpredictable as global and domestic macro uncertainties rose, with US-India trade deal standoff adding a fresh layer of complexity, economists said.

During the August monetary policy, RBI Governor Sanjay Malhotra have said that the impact of the US tariffs on Indian economy will be minimal. The governor reiterated similar words during the address at the FIBAC 2025 event in Mumbai on August 25.

However, economists warn that the real test will unfold in the coming days, once the magnitude of trade disruption becomes clearer. Early estimates suggest the hit could amount to nearly 1 percent of GDP.

Economists broadly anticipate that the central bank may deliver a token 25 basis point (bps) cut in the policy repo rate during the second half of FY26. The timing, however, remains uncertain. “The RBI is unlikely to act in the October policy unless growth weakness becomes more visible. For now, it will prefer to wait and watch, balancing domestic resilience against global volatility,” said Kanika Pasricha, Chief Economic Advisor at Union Bank of India.

Further, Madhavankutty G., Group Chief Economist at Canara Bank said no rate action is expected in October. “It will be a status quo. However, some measures to support MSMEs may be announced by way of special windows, moratorium, among other.”

The central bank has brought down the repo rate by 100 bps since February before hitting pause in August review. The monetary policy committee’s next review is due in October.

The dilemma for the RBI is compounded by the interplay of global and domestic forces. On one hand, US tariff measures, if prolonged, risk denting exports and dampening investor sentiment. On the other hand, inflation remains broadly under control, giving the central bank some room to manoeuvre if conditions worsen. The trade-off will likely keep the MPC cautious and data-driven, opting for incremental moves rather than sweeping policy shifts.

While the RBI governor’s comments offer short-term reassurance, the larger question of how tariffs reshape India’s growth trajectory will remain central to monetary policy in the coming quarters. A clear policy response, analysts argue, will crystallise only once growth fault lines become visible in the data, leaving October too soon for a move, but keeping the door open for rate cuts later in the year.