Slowing global demand from Trump's tariffs will overall lower India's inflation: RBI Governor Malhotra

RBI Governor Sanjay Malhotra

Reserve Bank of India (RBI) Governor Sanjay Malhotra recently explained how US President Donald Trump's tariffs will overall lower India's headline inflation. Speaking to Times of India, the central bank chief further hinted at what to expect from the next MPC meeting, which is scheduled in June.

Speaking about the changing global trade dynamics, Malhotra said that India is currently engaged in talks with US and nearly 75 other countries. He is hopeful that the impact of the trade tariffs on India's growth will be moderate, although the RBI reduced its growth forecast by 20 bps to 6.5 percent in its last MPC meeting.

Malhotra explained that the tariffs will have two opposing impacts on Indian economy. The imported inflation will result in the increase in prices. On the other hand, slower global demand will soften prices. However, the impact of the latter will be stronger. Hence, the tariffs are likely to result in overall lower inflation for the Indian economy, the RBI Governor said.

US President Donald Trump had introduced a slew of reciprocal tariffs on a number of nations in April. What followed next was a tit-for-tat trade war between US and several nations, including China. India meanwhile engaged in talks with the country for a possible trade deal.

Malhotra said that India needs to diversify its trade relationships while simultaneously integrating more into the global value chain, by improving efficiency and productivity. The uncertainties also pave the way to focus on domestic growth drivers, he added. "The corporate sector needs to focus on improving productivity and efficiency. Simultaneously, it’s crucial to diversify and not be overly dependent on just one, two, or three countries. This is the time for diversification of the trade basket, country-wise and product-wise, focusing on our strengths," he told ToI.

Speaking about RBI's MPC meeting which is scheduled for June, Malhotra said that the stance was changed to 'accomodative' in the last meeting. "Going forward, this signifies either a status quo or a rate cut," he told the publication.