Amid global uncertainty, the Reserve Bank of India forecasts inflation at 4% in fiscal 2025-26 due to Trump’s tariffs, compared with 4.2% at its February meeting.
“MPC notes that inflation currently below target is in a huge drop in food prices. In addition, the decisive improvement in the inflation outlook. According to the forecast, the lasting confidence of Toutiao inflation continues to be the same as the 4% OV 12-month target due to the forecast,” said the central bank head.
“While food prices have fallen more than expected in terms of inflation, we remain vigilant about global uncertainty and the possible risks of weather disruptions,” he added.
The central bank also lowered its repurchase rate for the second time in a row, reducing it from 6.25% to 6.00%. It maintains its policy stance “neutral”, suggesting it will continue to balance inflation control with efforts to support economic growth.
Please read also: RBI MPC fits the focus – From repo rate to GDP growth, the key numbers focused on before policy results retail inflation fell to a seven-month low of 3.61% in February, down from 4.31% in January, a welcome for average households throughout the year. This is the harvest of ordinary families in the year. FY25. However, it also warns that global risks can still take things off track.
While India raises retail inflation to a four-year low of 5.4% in fiscal 24, the Reserve Bank of India is now facing a new challenge: how to deal with the economic impact of Trump’s new trade tariffs.
Global crude oil prices have fallen 13% since the tariffs were announced, with the Indian rupee rebounding slightly, recovering about 2.3% from February lows. These developments may help relieve inflationary pressures at present.
But that’s not all the benefits, as economic growth may still take a hit.
Please read also: RBI MPC Conference Live: As tariff tensions increase, will RBI MPC choose to lower the tax rate this time?
India’s economy is expected to grow by 6.7% in fiscal 26, slightly higher than the 6.5% forecast for fiscal 25. However, experts warn that new tariffs could reduce that growth by 20-50 basis points. Although India has avoided the worst tariffs (34% tax rate than Chinese goods), areas such as gems and jewelry may still see a decline in overseas demand.
Most importantly, other ripple effects such as slower investment, stock market ups and downs, and concerns about a global slowdown have also increased uncertainty. In addition, investment bank Goldman Sachs has raised the chances of a U.S. recession to 45%, while the U.S. Federal Reserve has cautiously lowered interest rates.
