RBI signals it's ready to hunker down for the long haul as Trump's tariff blow lands on India

In what is being interpreted as a significant signal of reassurance by economy watchers and markets, the RBI has issued a strong declaration of intent that it will dig in for the long haul and fight it out even as Trump's tariffs potentially disrupt India's finance math, starting tomorrow.

In the wake of the United States imposing a steep 50% tariff on Indian exports, RBI Governor Sanjay Malhotra has reassured that the central bank is ready cushion the blow. Speaking at the FIBAC 2025 event hosted by the Federation of Indian Chambers of Commerce and Industry (FICCI) in Mumbai on August 25, Malhotra highlighted the RBI's proactive stance in supporting the nation's economic growth.

Following the initial tariff announcement in April, the RBI had already revised its GDP growth projection downwards by 20 basis points. With the recent increase in tariffs, Malhotra acknowledged the challenges that lie ahead.

"We are hopeful that trade negotiations will play out and expect that the impact will be minimal," Malhotra said.

While he noted that approximately 45% of exports fall outside the tariff regime, certain sectors could face significant challenges. Industries such as gems and jewellery, textiles, shrimps, and micro, small, and medium enterprises (MSMEs) may be particularly vulnerable to the tariff changes.

In response, the government is actively pursuing reforms and exploring free trade agreements, some of which have been in development for an extended period.

These factors provide a robust foundation for businesses to plan their next phase of expansion, with domestic demand remaining strong.

To further bolster the economy, the RBI has been implementing a series of easing measures. Malhotra revealed that the repo rate has been reduced by around 100 basis points, and ample liquidity has been injected into the banking sector to support growth initiatives.

A significant focus of the RBI's strategy is the internationalisation of the Indian rupee. Malhotra explained that developing trade in local currencies is crucial for reducing dependence on foreign exchange volatility.

The central bank has already established agreements with four countries—Maldives, Mauritius, Indonesia, and the UAE—marking the beginning of trade in local currencies.

However, he cautioned that this transformation will be gradual, taking years, if not decades, to fully materialise.

Despite the challenges posed by the external environment, Malhotra expressed confidence in India's macroeconomic fundamentals. "Inflation is moderating, growth has been steady, the external sector is stable, and the financial system is sound," he noted.