The ‘higher-than-expected’ tariffs mean that RBI rate cut likely a ‘done deal’: Barclays

Mumbai: The higher-than-expected tariffs announced by US President Donald Trump reinforced expectations of further monetary policy easing by the Reserve Bank of India (RBI), British multinational bank Barclays said in a report on Thursday.

“The higher-than-expected tariffs reinforce our view of three more rate cuts from the Reserve Bank of India (RBI), to a terminal rate of 5.50%,” the report said.

While India’s domestic orientation may shield it from some of the pressures stemming from large reciprocal tariffs, weaker global growth and the adverse effects of US tariffs on exports – even if temporary – suggest that the RBI is likely to continue easing. “Growth and inflation outcomes being lower than the RBI’s estimated trajectory mean a rate cut at the meeting next week is likely a done deal,” Barclays said in it’s report.

The report also warns of downside risks for the Indian rupee (INR), as the RBI may allow some depreciation following recent appreciation ahead of tariff announcements. “With some clarity on tariffs, we think the RBI might allow some renewed weakness in the INR in the near term,” the report said, adding that India’s growing trade ties with China necessitate close monitoring of currency movements.

Also Read: Carefully examining implications of Trump’s tariffs announcement: Govt

Most Emerging Asian governments are now under pressure to negotiate with the Trump administration, the report said.

Even before the April 2 tariff announcement, India and Thailand had been exploring ways to reduce tariff risks, including increasing their purchases of US goods. Some governments have taken a more proactive approach, engaging directly with US officials.

The Barclays report suggested that India appears to be leading in these efforts, citing reports that say the terms of reference for a bilateral trade agreement with the US have already been finalised. Formal negotiations are underway, with US officials participating in four days of talks in India at the end of March. “India is likely to adopt a conciliatory stance on tariffs and may agree to lower tariffs on specific product categories while easing market access restrictions,” it said.

Also Read: India’s response to Trump’s tariff move will be measured, calibrated: Official

Some reductions have already been implemented, most notably in the Union Budget presented on February 1. However, politically sensitive sectors like dairy and agriculture may prove more difficult to negotiate.