Context:
The recent wave of reciprocal tariffs imposed by the US on major economies with India facing lower relative tariffs could lead to:
- Increased dumping of goods into India from countries seeking alternative export markets
- Lower domestic inflation due to a possible oversupply of cheaper imported goods
SBI’s View
State Bank of India (SBI) suggests that:
- India could experience downward pressure on inflation
- Dumping by countries impacted more severely by US tariffs might flood Indian markets with low-cost goods
This may benefit consumers in the short term but could harm domestic manufacturers and require policy response.
UBS Outlook
According to UBS:
- There is scope for an additional 50 basis points (bps) rate cut in the current monetary cycle
- This would follow the 25 bps repo rate cut in February
- UBS also expects:
- Currency flexibility
- Continued liquidity support
- Potential regulatory easing to support economic stability
Rate Policy Timeline
- Between May 2022 and Feb 2023, RBI had raised rates by 250 bps
- The stance shifted from “withdrawal of accommodation” to “neutral” in October 2023
- Further rate cuts are now likely, in light of global economic slowdown risks
Emkay Global’s Warning
Emkay Global sees material downside risks to India’s 6.5% GDP growth forecast for FY26, citing:
- Higher chances of a US/global recession if tariffs persist
- Disinflationary effects from:
- Declining global commodity prices
- Supply gluts
- India may not remain insulated from a cyclical slowdown in Emerging Markets (EM) Asia, despite its current resilience
The report also highlights that RBI and other EM central banks will need to manage conflicting forces in financial markets, even as they adopt a more dovish stance.
BS
