Upasana Chachra, an economist at Morgan Stanley, anticipates another rate cut in June following an expected 25 basis point rate cut due to the increasing downside risks to growth. Chachra believes the Reserve Bank of India (RBI) may need to adopt an accommodative stance to provide guidance on future rate easings for business confidence and investment, which are currently at risk due to potential changes in US trade policy and reciprocal tariffs.
Chachra highlights that the proposed 26% reciprocal tariff rate is higher than expected, contributing to business uncertainties and possibly exacerbating growth slowdowns. India’s direct trade exposure to these tariffs is relatively low, with exports to the US representing only 2.1% of GDP. However, the broader impact concerns the indirect effects from a slowdown in global growth and trade, which could undermine business confidence and investment cycles.
Inflation in India has been lower than anticipated, offering some positive news amidst external economic pressures. Current projections suggest inflation might stay below 4% in the upcoming months, mainly due to easing food prices. This may allow the RBI to respond appropriately as real rates expand, mitigating adverse growth impacts.
Regarding equity markets in India, which is one of the fastest-growing economies, Chachra acknowledges potential downside risks to GDP growth that might affect earnings growth expectations. Nominal GDP growth is anticipated to remain around double digits, dependent on commodity prices and the GDP deflator. The trajectory of equity markets and earnings will hinge on resolving uncertainties surrounding tariffs and trade relations between the US and India.
