US President Trump’s April 2025 tariff announcements have escalated trade tensions and clouded the global economic outlook, prompting the IMF to downgrade its global growth forecasts. India’s recovery continued through Q4 FY25, but the FY26 outlook faces headwinds from evolving US trade policies and heightened global uncertainty. While the direct impact of US tariffs on India is moderate, broader spillover effects from global trade tensions pose downside risks to growth.

Given the downside risks to growth and contained inflation (CPI inflation at 3.3% in March), the RBI has shifted focus to supporting economic growth. In April, it cut the policy repo rate by 25-bps to 6% and changed its stance from ‘Neutral’ to ‘Accommodative,’ signalling further easing. We expect an additional 50 bps rate cut (25-bps each in June and August), with surplus liquidity likely maintained to ensure effective policy transmission.