Trump tariffs prompted MPC to wait and watch

Mumbai: Uncertainty over US President Donald Trump's tariffs and external demand clouded the Monetary Policy Committee's assessment of the future path of growth and inflation, prompting it to hold back further easing after 100 basis points (bps) of cuts since Feb (100 bps = 1%). The committee kept the repo rate unchanged at 5.5% with a neutral stance at its Aug meeting, saying it would wait for incoming data and the full transmission of past policy moves before considering fresh action.

According to the minutes of the Aug 6 meeting released today, RBI governor Sanjay Malhotra said the economy presented "a picture of strength, stability, and opportunity" but external risks were weighing on the outlook. "Rural demand is buoyant and monsoon conditions are favourable, but urban demand continues to remain sluggish. Urban demand is likely to pick up during the festive season, especially in a period of benign inflation," he said.

He pointed to resilient growth projected at 6.5% for FY26, supported by farm output, govt capex and services, but cautioned that global trade and tariff uncertainties were holding back private investment. "Uncertainty in external demand, driven by tariff and geopolitical uncertainty, remains the major drag on growth as it also hinders private investment intentions, which is yet to show visible signs of improvement," he added.


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