Will Trump's tariff threats impact India's growth and inflation outlook? Here's what RBI thinks

Malhotra said the rate-setting panel will continue to assess the macroeconomic conditions on a policy-to-policy basis. Reuters

Reserve Bank governor Sanjay Malhotra on August 6 dismissed fears of any tariff impact on the India’s inflation and growth projections, saying the central bank will continue to monitor incoming data.

“We don't see a major impact of US tariff (on economy) unless you have retaliatory tariff,” Malhotra said during a post-policy media briefing.

“As of now, we do not have sufficient data to revise our GDP forecast,” he added.

Malhotra said the rate-setting panel will continue to assess the macroeconomic conditions on a policy-to-policy basis.

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The RBI governor hoped that India and the US will reach an “amicable solution” for both nations' trade concerns. Trump, in recent weeks, has ramped up tariff pressure on New Delhi, saying India’s purchase of Russian oil is "funding the death of Ukrainians".

The ministry of external affairs, in a sharp rebuttal, said the comments were “unjustified and unreasonable” and showed the “double standards” of the West. Trump last week announced a 25 percent tariff of Indian goods and a penalty for buying Russian oil. He further has threatened to substantially hike the tariff on Indian goods further in the next 24 hours.

Malhotra said if India stops buying Russian oil, the impact of that will depend on government’s policies.

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“If India has to stop buying Russian oil, the impact will depend on is how much of its impact downwards or upwards is taken by the government in the form of excise duties and other tariffs. So, we don't see any major impact as of now because of this on inflation,” the governor said.

The central bank's monetary policy committee in its bi-monthly policy meeting unanimously decided to hold the rate at 5.5 percent, with a "neutral" policy stance.

Several experts had asked for a 25-bps rate cut in the August policy to shield the country’s growth from tariff pressures. However, explaining the rationale behind holding the rates, Malhotra said the central bank has already front-loaded rate cuts over a period of four months and the transmission of that is in the process amid a cloud of uncertainty.

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Moreover, the central bank’s deputy governor Poonam Gupta said the impact of these “evolving uncertainties” on inflation is likely to be “very limited”.

“Nearly half of our inflation basket consists of food, which does not get impacted directly by global developments. A significant part consists of non-tradable, which, again, does not get impacted by global developments,” Gupta explained.