Will RBI Cut Rates Amid Global Trade Tensions? Insights from Financial Experts

RBI's Upcoming Rate Decision Amid Global Uncertainty

New Delhi: Recent shifts in global sentiment, coupled with significant market fluctuations and recession fears due to US tariff impacts, suggest that the Reserve Bank of India (RBI) may implement a 25 basis points rate cut on April 9. This adjustment could also see a shift in policy stance towards a more 'accommodative' approach, according to a report released on Tuesday.

The Central Bank commenced its three-day Monetary Policy Committee (MPC) meeting on Monday.

The report from Emkay Global Financial Services highlights the uncertainty surrounding the duration of the global trade conflict. It suggests that this year, monetary policy in India may need to adopt a more countercyclical approach compared to fiscal measures, as the country faces potential repercussions from both global financial disruptions and impacts on the real economy.

While there is potential for negotiations and de-escalation, the report indicates that this moment could be crucial for emerging market assets in the upcoming months.

However, due to the unpredictable nature of global markets, the RBI may choose to conserve its resources and avoid making significant cuts in April.

The report also mentions that unconventional easing methods, such as relaxed regulatory lending norms and reduced daily cash reserve ratio (CRR) requirements for banks, might be considered if necessary.

In the short term, a revision of the liquidity framework is anticipated, favoring daily variable rate repos (VRRs) over the current 14-day VRR, to enhance asset liability management and liquidity for banks.

The report emphasizes that the evolving global landscape will necessitate the RBI's agility in addressing any risks associated with tighter financial conditions, particularly as sentiment shocks and capital flow disruptions may lead to increased risk premiums for emerging markets.

Despite the unclear extent of the trade war's impact, the report reiterates that monetary policy will likely need to play a significant role in India.

Ankita Pathak, a Macro Strategist and Global Equities Fund Advisor at Ionic Asset by Angel One, predicts a 25 basis points rate cut from the RBI, along with a shift from a neutral to an accommodative stance.

Pathak notes that while India is in a relatively favorable position regarding tariffs compared to other Asian nations, it is still expected to experience some effects from a global economic slowdown. The response from China to Trump's tariffs will be crucial for Asian central banks, including the RBI, influencing both currency and interest rates.

India has been in need of monetary reflation even prior to the tariffs imposed by Trump, and the current necessity to support growth is more pressing than ever. This support must manifest through both rate reductions and the maintenance of surplus liquidity.