Context:
The Reserve Bank of India (RBI) released the minutes of the latest Monetary Policy Committee (MPC) meeting, underscoring concerns over the adverse impact of global trade tensions, tariffs, and geopolitical uncertainties on India’s growth outlook.
Key Highlights:
- Growth Concerns:
- India’s economic growth is still a bit slow.
- Private companies are hesitant to invest, partly because of uncertainty in global trade, like US tariffs.
- Banks are not lending as much as expected, even though interest rates are lower.
- Domestic Economic Conditions:
- Rural Economy: High-frequency indicators show buoyant rural economic activity and consumption.
- Urban Economy: Urban spending remains sluggish, with private investments showing limited momentum.
- Policy Support: Growth is expected to receive support from supply-side factors and a favourable policy environment in the second half of the financial year.
- Inflation Risks:
- Inflation is likely to go above the RBI’s 4% target, possibly near 4.9% in early 2026.
- RBI wants to avoid cutting rates too soon, which could reduce room to act if inflation rises further.
- Ongoing Transmission:
- Previous rate cuts are still taking time to reflect fully in the economy.
- Right now, borrowing costs aren’t a big problem for growth.
- Global Uncertainty:
- Geopolitical tensions and trade-policy uncertainties persist.
- Interest rate decisions by US Fed and other central banks could influence future RBI policy moves.
