There are enough hints in the MPC resolution released on Wednesday. It has brought down the GDP growth forecast for 2025-26 from the 6.7% forecast in February to 6.5% now. Given the fact that most analysts are expecting a GDP hit of about 50 basis points, this might seem like a relatively optimistic assessment. However, the Governor’s statement acknowledges several “known unknowns” such as ongoing trade talks with the US, impact of relative tariff changes on Indian exports and price elasticity of Indian exports. There is no point in nitpicking RBI’s assessment of headwinds to growth at the current juncture.

The only significant tailwind for India at the moment is the global bear market in commodity prices which will not just help control inflation but could also neutralise GDP headwinds to an extent in things such as energy imports as the import component goes down.

RBI’s and Indian economy’s challenges would be very different depending on the end game of the tariffs imposed by Trump administration. The US reaching a quick understanding with its important trade partners might calm nerves in the domestic and global markets with players trying to align themselves to the new normal. A full-blown trade war — this is what the US-China dialectic looks like at the moment — might create a problem that is far more complicated and difficult to handle.

All of these disruptions will play out simultaneously in not just the growth-inflation dynamic but also things such as capital flows and foreign exchange markets, with serious implications for external balance and macroeconomic stability. RBI’s interventions on the liquidity front and in foreign exchange markets are going to have to be equally careful and nimble at the moment. A cut is a good beginning of what looks like a treacherous ride.