‘I’m not Sanjay of Mahabharata': RBI Governor on India's repo rate outlook amid Trump tariff tantrums

Reserve Bank of India (RBI) Governor Sanjay Malhotra signalled that the extent of the repo rate's downward trajectory is uncertain as of now, given the global economic uncertainties triggered by US President Donald Trump’s tariffs. “I am Sanjay but not Sanjay of Mahabharat, who can predict future rate actions," said the RBI Governor when asked if more rate cuts are in the offing.

According to Mahabharata, Sanjay was blessed with divine vision and used his power to relay actions at the Kurukshetra battlefield to blind King Dhritarashtra at his palace. RBI Governor Malhotra further said that monetary and fiscal policies are acting to meet the growth-inflation targets.

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Malhotra's remarks came during the post-policy press conference after he delivered the second straight interest rate cut since taking over as the RBI Governor. Following the 25 basis point (bps) cut by the RBI Monetary Policy Committee (MPC), the key policy rate eased to six per cent. This led to borrowing costs hitting the lowest level since November 2022. The central bank also changed its policy stance from "accommodative" to "neutral."

RBI repo rate outlook

The RBI Governor also highlighted that any decrease in the interest rate takes at least six to nine months to be transmitted after the latest policy announcements, and the central bank will be watchful of it.

"Transmission, you are aware, it takes a little while. It will not happen immediately. We have seen that transmission in the past; when we increased the repo rate by 250 bps, it took at least six to nine months for the interest rates to decrease in response to the policy repo rate decrease," he said.

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“The aim really is to look at the policy rate. So if you can transmit it to the overnight rate, hopefully, it will then transfer to the other short-term, medium-term, and long-term interest rates,” added the RBI Governor.

"It is a joint effort..the government has done its bit in the Budget recently by taking a large number of measures in terms of the increased capex, interest tax rebates, and we have reduced repo rate and changed the stance going forward, which means that the direction of the repo rate is downwards."

“Going forward, absent any shocks, the MPC is considering only two options: status quo or rate cut. The domestic growth-inflation trajectory demands monetary policy to be growth-supportive while watchful on the inflation front," he added.

He further said, "We will jointly (with the government) try to manage the growth and the inflation dynamics in our country". Malhotra assured that the RBI will maintain sufficient liquidity for speedier rate-cut transmission. The RBI aims to maintain a surplus of about one per cent of net deposits.

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How will Donald Trump's tariffs impact India?

RBI Governor said he is more worried about the impact of the ongoing global tariff war on growth than inflation. Against this backdrop, the RBI also reduced the growth forecast for 2025-26 by 20 basis points to 6.5 per cent.

Malhotra said that the impact of US tariffs on India will be much less than its impact on other countries. As far as the impact of the US tariffs on India goes, he said, “We have given our assessment. We have reduced the economic growth rate by 20 bps this year, primarily arising from uncertainties.”

On the inflation front, he said, "It can actually move both ways because of the surplus, because of the demand that is going to shrink as a result of the trade tariff friction. It may help on the inflation front". RBI lowered the retail inflation estimate to four per cent, 20 bps lower than the previous estimate.

Malhotra said US tariffs will hit the economy’s growth, which is the first official indication of the negative consequences of trade action. He said the tariffs would be a “growth dampener,” and the impact would be felt on India's growth instead of inflation.

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The government has been silent on the impact of the tariffs on the economy so far, but it said it is looking at ways to support exporters while speeding up trade talks with the US. The RBI Governor said that the economy is “better placed than other countries,” which depend more on exports.

Last week, Trump announced reciprocal tariffs on 60 countries, including India, effective April 9. India has attracted a 26 per cent reciprocal tariff on various products, including shrimp, carpets, medical devices, and gold jewellery. 

The US has claimed that American goods face a 52 per cent duty in the Indian market. A new tariff policy was designed to reduce the US trade deficit and boost domestic manufacturing. Earlier, Malhotra signalled easing ahead as the central bank sought to bolster the economy amid US tariff pressure.