US Tariffs Will Influence RBI On Repo: Experts

While it does look like conditions are rather clear for another 25 bps cut in repo rate this time with the inflation prospects being benign and liquidity having settled down, it is also ex-pected that the stance will change to accommodative - Madan Sabnavis, Chief Economist at Bank of Baroda

Mumbai: The Reserve Bank is likely to cut key interest rates again by up to 25 basis points this week, as lower inflation provides support for an accommodative monetary policy stance, and there is a pressing need to stimulate growth at a time when the reciprocal tariffs announced by the US is posing a challenge to the global economy.

In February, the RBI’s Monetary Policy Committee (MPC), headed by Governor Sanjay Mal-hotra, slashed the repo rate by 25 basis points to 6.25 per cent. It was the first reduction since May 2020 and the first revision after two-and-a-half years. The 54th meeting of the MPC, the rate-setting panel, is scheduled to start deliberations on April 7, and the decision will be an-nounced on April 9.

The Reserve Bank of India (RBI) has kept the repo rate (short-term lending rate) unchanged at 6.5 per cent since February 2023. The last time the RBI reduced the rate was during the Covid times (May 2020), and thereafter, it was gradually raised to 6.5 per cent.

Bank of Baroda Chief Economist Madan Sabnavis said the credit policy to be announced this week will come at a time when several things are happening around the world and within the economy. The new round of tariffs imposed by the US would have some impact on growth pro-spects and the currency which is something that the MPC will have to consider beyond the nor-mal assessment of the state of the economy, he said.

“While it does look like conditions are rather clear for another 25 bps cut in Repo rate this time with the inflation prospects being benign and liquidity having settled down, it is also expected that the stance will change to accommodative, meaning...that there could be more rate cuts in the offing during the course of the year,” Sabnavis said.

US President Donald Trump on April 2 announced reciprocal tariffs ranging 11-49 per cent on about 60 countries, including India and China. It will come into effect from April 9. There are challenges and opportunities for India as many of its competitor countries in exports, such as China Vietnam, Bangladesh, Cambodia and Thailand, face higher duties, according to experts. Rating agency Icra also expects the MPC to cut rates by 25 bps in its upcoming meeting, while maintaining a neutral stance.