Hopes for another interest rate cut by the Reserve Bank of India (RBI) have dropped after US President Donald Trump unexpectedly threatened India with 25% tariffs. This surprise move may affect the RBI’s upcoming policy decision on August 6, even though inflation has recently dropped to its lowest point in six years.
Earlier, RBI Governor Sanjay Malhotra had hinted that lower rates could be possible, especially after June’s large 50-basis-point rate cut. But now, Trump’s announcement has created uncertainty in the markets. The Indian rupee weakened to a five-month low, dropping 0.4% to 87.7375 against the US dollar on Thursday. The NSE Nifty 50 stock index also fell by 0.9%, showing that investors were nervous.
Experts believe that if the RBI cuts rates again, it may put more pressure on the rupee. With the US Federal Reserve keeping its interest rates steady, countries like India have less reason to cut rates further. Madhavi Arora, an economist at Emkay Global, said that the recent volatility in currency and interest rates might stop the RBI from making more cuts right now.
While Trump’s tariff threat may not immediately harm India’s economy, it still creates problems. India’s exports to the US were worth $81 billion last year, which is about 2.1% of the country’s GDP. According to Barclays economist Aastha Gudwani, the 25% tariffs could lower India’s growth by around 30 basis points.
The bigger concern is uncertainty. According to economists at Goldman Sachs, businesses in India that trade with the US might delay investments because they don’t know what’s coming next. This could hurt India’s overall economic growth in 2025 and 2026.
In response, India’s government said it would keep talking to the US for a fair and balanced trade deal. President Trump also said that talks were still ongoing, and some experts see this as the beginning of a new round of negotiations.
