Will another rate cut follow? Trump shocker looms

Expect key measures and know the stance of India’s central bank on April 9, as its Monetary Policy Committee (MPC), the RBI’s rate-setting panel, commenced its three-day deliberations on Monday. The first meeting of the new financial year 2025-26 is taking place amid widespread, and anxious, expectations of another repo rate cut. It may be recalled that the RBI cut the Repo Rate (the interest rate at which it lends to banks) by 25 basis points - A basis point (bp) is a 100th of a percentage point - to 6.25% at its MPC meet on February 7, 2025. It was the first rate cut in 5 years. It was also the first policy rate-setting panel meet for new Governor Sanjay Malhotra.

The RBI in February acted in deference to its new policy shift adopted in October 2024 when it shifted its stance to ‘neutral’ from ‘withdrawal of accommodation’. The budgetary measure of the government, amid softening signs of inflation, to boost consumption by easing tax burden on the middle class, especially, paved the way for the RBI to follow through with its changed stance. For commoners, a ‘hawkish’ stance means the RBI is willing to hike rates in order to manage inflation. RBI has targeted to keep retail inflation at 4 per cent with a margin of 2 per cent on either side. When the inflation is not a concern, it adopts an ‘accommodative’ stance, indicating it’s willing to cut interest rates to expand liquidity in market. A rate hike is definitely a no. A ‘neutral’ stance is when the RBI can either hike or lower interest rates, depending on data and conditions.

As for the current scenario, global markets are flailing due to US President Donald Trump’s tariff shocker on April 2. He claims it as the ‘Liberation Day’ for America, which is proving to be a ‘Liquidation Day’ for the markets – every day. On Monday alone, the Trump’s tariff inferno vaporised over Rs 20 lakh crore of investors’ wealth with the Sensex crashing 3,000 points – IN JUST 10 SECONDS. The bloodbath was a reaction to the global stock markets which have been in a tailspin. On Friday, S&P 500 companies lost about $5 trillion in stock market value. The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 leading companies listed on US stock exchanges. All stock markets are in a free fall since Trump announced country-specific tariffs, going as high as 50% in some cases. For India it is 26%. In addition, Trump announced a 10% baseline duty on imports from all nations.

Now, all eyes are on the RBI’s MPC which is taking an in-depth review of interest rates, money supply, inflation outlook, and various macroeconomic indicators post-Trump tariff shocker. It is being keenly debated as to how the MPC would take measures to maintain price stability while supporting economic growth. The RBI has targeted inflation within the range of 2-6 per cent, with a medium-term goal of 4 per cent. Inflation has emerged a major concern for many countries, including advanced economies. However, India has managed to steer its inflation trajectory quite well. The Consumer Price Index (CPI) inflation rate eased to 3.61% in February 2025, the lowest since July 2024, driven by a decline in food and beverage prices. Whether the RBI will go for growth or price stability is a big question now. Analysts around the world are dreading the immediate inflationary impact of trade shocks. As inflation is easing and GDP improving, the RBI has enough headroom. Will its MPC push for growth with further rate cuts or simply wait and watch till the dust settles? Tomorrow, we will come to know.