Trump’s renewed tariff threats may have played a role in RBI’s status quo on rates

While President Trump on July 30 announced a 25 percent tariff on nearly all Indian goods, on August 5 targetted India and talked about substantially increasing levies over New Delhi’s purchases of arms and energy from Moscow.

President Trump’s shifting trade policies may have also weighed on the central bank’s decision to maintain a status quo on rates, as the final structure of tariffs still remain unclear, experts have said.

According to economists and trade experts, the Reserve Bank of India’s rate pause showed the need for further clarity on tariffs that Trump may finally levy on New Delhi.

“Uncertainty over US tariffs may have played a bigger role in RBI pausing interest rates, because inflation is closer to the target as of now. So, this decision emanates from the 25-percent rate on India not being final and therefore the lack of clarity on the hit on Indian exports,” said Devendra Kumar Pant, chief economist, India Ratings and Research.

Pant added that given India’s annual US exports of over $80 billion, clarity on the final structure of tariffs as well as the trade deal are key to assess any hit on India’s exports.

While President Trump on July 30 announced a 25 percent tariff on nearly all Indian goods, on August 5 he again targetted India and talked about substantially increasing levies over New Delhi’s purchases of arms and energy from Moscow.

“The Reserve Bank of India has decided to pause policy rates and maintain a neutral stance, mainly because it requires more clarity on upcoming inflation data and the final US tariff structure, as these are currently creating greater uncertainty,” according to VP Nandakumar, Managing Director of Manappuram Finance.

Amit Somani, Deputy Head-Fixed Income, Tata Asset Management said, “RBI seems to be allowing time to work its front-loaded policy cut into the banking system, while keeping a watchful eye on longer-run inflation. Impact of emerging tariff situation on broad economy, markets, and currency continues to play on RBI’s mind.”

The central bank maintained its GDP forecast at 6.5 percent for FY26, but retail inflation projection was revised lower at 3.1 percent for the fiscal versus an earlier estimate of 3.7 percent.

Governor Sanjay Malhotra also cautioned about inflation inching up during the last quarter of the current fiscal, and highlighted that global trade challenges continue to linger, but prospects for the Indian economy remain bright.

Sakshi Gupta, principal economist at HDFC Bank sees room for another 25-50 bps rate cut, and said the RBI would exercise that only if there is a significant downside risk to growth, both due to domestic activity performance and impact on tariffs.

“Only if the tariff outcome becomes decisively negative between now and the October policy, the probability of a rate cut could then increase for the upcoming policy. For now, we expect that the policy rate remains unchanged at 5.5-percent for FY26,” Gupta said.

As Emkay Global’s chief economist Madhavi Arora said, “the RBI seems to keep some ammunition for rainy days ahead, especially on growth.”