1 Percent Interest Rate Cut by RBI Could Happen, Petrol and Diesel Prices May Fall
On April 6, following the heavy tariff increase by US President Donald Trump, a negative impact on the global economy began to emerge. This policy change caused a decline in stock markets worldwide, including India. Countries like China responded by imposing heavy tariffs on US products. This has raised concerns that the economies of the US and China might slow down, which could have an impact on global economic growth, including India.
Risk of Recession and the Possibility of Cheaper Savings in India
Economists at Goldman Sachs have stated that the increase in tariffs in the US could slow down India's economic growth. However, there is a positive side to this situation as well. Due to the tariff war, the global economy may face a recession, and to avoid it, India will need to boost domestic demand. In such a scenario, the Reserve Bank of India (RBI) might consider cutting interest rates as an effective measure.
Reduction in EMI and Expectations of Cheaper Petrol and Diesel
The Reserve Bank of India’s Monetary Policy Committee (MPC) has recently started its meeting, and there are expectations that RBI might reduce the repo rate by 0.25%. However, after the 27% tariff on US products, this reduction could rise to 0.50%. If this cut happens, it will benefit the general public with cheaper EMIs and loans.
Additionally, due to the decline in global oil prices, petrol and diesel prices may decrease. In the past week, crude oil prices have dropped by 12%, which has reduced the cost for oil marketing companies. The government may face increasing pressure to reduce petrol and diesel prices to stimulate economic activities. This could also lead to lower prices for goods that rely on oil for transportation.
Pressure on RBI and Relief from Inflation
According to economists, the imposition of tariffs by China and the US on Indian products may cause a 0.3% loss to India’s manufacturing sector, and services exports may fall by 0.2%. As a result, India’s GDP growth could be hit by 0.5%. To counter this recession, the government and the RBI may come under pressure to implement measures that boost domestic consumption, such as providing cheaper loans.
However, inflation is a major concern, as a reduction in interest rates may lead to an increase in inflation. But according to an SBI report, inflation in India could remain below 4% between October and December, making it easier for the RBI to reduce the repo rate.
Global Economic Recession Risks and Measures in India
Economists worldwide believe that if the US and other countries continue their tariff policies, the risk of a global economic recession may increase. To avoid this recession, India will need to boost domestic demand, and the easiest way to do this is by cutting interest rates.
Reports suggest that the RBI may reduce the repo rate further, leading to more cash flow for banks and cheaper loans. Goldman Sachs believes that this improvement in the cash position of banks could support India's economy by 0.10%. Additionally, the fall in crude oil prices could provide an additional 0.1% support for India's economic growth.
Impact of the Tariff War on India's Economy and Relief from Interest Rate Cuts
The tariff war may have a significant impact on India's economy, but with the potential for interest rate cuts by the RBI and lower oil prices, relief could come for the Indian public and the economy. The decisions made by the government and RBI in the coming months could play a crucial role in steering the economy out of this recessionary phase.