RBI hints at policy measures to counter 50% US tariffs
What's the story
The Reserve Bank of India (RBI) has hinted at possible policy measures in response to the 50% US tariffs, which come into effect on Wednesday. Sanjay Malhotra, the Governor of RBI, said this during his speech at the FICCI-IBA annual banking conclave. He emphasized that while managing inflation amid uncertainties, the central bank hasn't lost sight of growth.
Policy response
RBI ready to take necessary steps: Malhotra
Malhotra said, "We have provided ample liquidity to the banking sector and whatever else is required to support the growth of the economy." He reiterated that if needed, the RBI will take necessary steps to support sectors impacted by these tariffs. The central bank's six-member rate-setting panel had cut the policy repo rate by 100 basis points between February and June, maintaining it at 5.5% in August.
Economic forecast
Sectors likely to be impacted by US tariffs
In the April policy review, RBI had lowered its GDP growth projection for FY26 to 6.5% after the US announced 26% tariffs (later adjusted to 25%). Malhotra said that while the overall impact of these tariffs would be minimal, sectors like gems and jewelry, textiles, apparel, shrimps, and MSMEs could face potential challenges. He also noted that the government is exploring free trade agreements to mitigate these impacts.
Trade agreements
Internationalization of INR, trade in local currencies
On the use of the Indian rupee (INR) in trade transactions, Malhotra stressed that internationalization of the Rupee is a key area the RBI has been focusing on. He said, "It is important for countries to develop trade in local currencies." The Governor revealed that India already has agreements with four countries, the Maldives, Mauritius, Indonesia, and the UAE, and trade is happening in local currencies.
Economic resilience
Trade in local currencies, slow process but beneficial
Malhotra reiterated the RBI's commitment to support the economy and sectors that could be affected by US tariffs. He said, "If it so happens, we will not be found wanting in our job." The Governor acknowledged that while trade in local currencies is a slow process, it would help cushion the economy from foreign exchange price movements.