Tariff Shock Suggests 25bps Rate Reduction, RBI May Shift to ‘Accommodative’ Approach: Report

New Delhi, April 8 (NationPress) The rapid change in global sentiment, significant market volatility, and recession fears stemming from the US tariff shock suggest a 25bps reduction by the Reserve Bank of India (RBI) on April 9. There is a potential shift in stance towards “accommodative” to facilitate directional easing bias, as reported on Tuesday.

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

“The duration of the global trade conflict remains uncertain. This year, monetary policy may need to be more countercyclical in India than fiscal measures. The repercussions for India could arise from global financial market disturbances and impacts on the real sector,” stated Emkay Global Financial Services in their report.

While there is potential for negotiation and de-escalation, “we believe this could mark a crucial turning point for emerging markets (EMs) assets in the upcoming months.”

However, the RBI may be cautious in utilizing all available measures too quickly, given the unpredictable nature of global markets, and thus may refrain from frontloading rate cuts in April.

“Alternative options like non-conventional easing, including relaxed regulatory (lending) norms, a reduction in the daily CRR requirement for banks to below 90 percent, and managed sterilization of INR, may be utilized if necessary,” the report indicated.

In the near term, a significant overhaul of the liquidity framework may favor a daily variable rate repo (VRRs) instead of the 14-day VRR, serving as the primary tool for enhanced asset liability management (ALM) and liquidity management for banks.

The report noted that the fluid global dynamics will necessitate the RBI to be agile in addressing any risk of tighter financial conditions, “especially as the shock to sentiment/capital flows is likely to necessitate higher risk premia from EMs.”

While the extent of the trade war’s impact remains uncertain, it is suggested that monetary policy in India may need to be more proactive, as indicated.

According to Ankita Pathak, Macro Strategist and Global Equities Fund Advisor at Ionic Asset by Angel One, the RBI is expected to implement a 25bps rate cut tomorrow, along with a shift in stance from neutral to accommodative.

“In terms of tariffs, India is in a relatively better position compared to the rest of Asia. However, it is improbable that the country will remain unaffected by a global slowdown. China's reaction to Trump's tariffs will be pivotal for Asian central banks (including the RBI) and will influence the trajectory of both currency and rates,” Pathak remarked.

India has required monetary reflation even prior to Trump’s tariffs, and the urgency for it to stimulate growth, along with the capacity to execute it, is at a peak. Consequently, it must manifest in both rate cuts and the maintenance of surplus liquidity,” she emphasized.