India rate panel says US tariffs key drag on growth, flags benign inflation outlook
The Reserve Bank of India held its key repo rate steady at 5.50% earlier this month, after cutting rates by 100 basis points so far in 2025.
The six-member Monetary Policy Committee voted unanimously to retain a "neutral" stance, citing the need for flexibility amid domestic and global uncertainties.
"Growth projected at 6.5% is resilient," RBI Governor Sanjay Malhotra wrote in the minutes, but added the projection was "certainly lower than what we can achieve."
He warned that uncertainty in external demand, driven by tariffs and geopolitical tensions, remained a major drag on growth.
India faces as much as 50% tariff on exports to the United States starting August 27 after U.S. President Donald Trump imposed an additional 25% tariff earlier in the month citing New Delhi's continued imports of Russian oil.
Malhotra said the moderation in food inflation since the June meeting was larger than expected, but cautioned that the uncertainties around tariffs were still evolving. He added that the neutral stance would provide the necessary flexibility to respond to changing conditions.
India's retail inflation rate dropped to its lowest level in eight years in July, as falling food prices, especially vegetables and pulses, squeezed farmers' incomes.
Deputy Governor Poonam Gupta said the moderation in inflation was not broad-based and was primarily driven by food prices falling. "Core inflation is likely to remain above 4% in the near to medium term, barring any major negative shock to input prices," she wrote.
MPC member Ram Singh said the average CPI inflation outlook for 2025–26 had become "very benign," though core inflation was expected to stay above the target range. He flagged sustained growth in construction, trade and services, but warned of high uncertainty on both inflation and growth fronts.
External member Nagesh Kumar said the case for stimulating private investments and urban demand remains strong while the benign inflation outlook also provides policy space. But considering trade policy uncertainties, it is better to wait and watch before looking at any policy decisions at the October meeting, he said.
External member Saugata Bhattacharya said monetary policy has to address multiple, often conflicting, objectives and optimise the consequent trade-offs. He highlighted the trade-off between loan and deposit rates as one of the key considerations.
The central bank has a 4% inflation target, with a tolerance band between 2% and 6%. India reports GDP growth data on Friday.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
8 minutes ago
- Reuters
India passes bill to ban online games played with money
Aug 21 (Reuters) - India's government on Thursday passed a bill to ban online games played with money, which analysts expect to be a heavy blow for an industry that has attracted billions of dollars of foreign investment. The Promotion and Regulation of Online Gaming Bill 2025 prohibits "harmful" online money gaming services, advertisements and financial transactions related to them, with the government citing psychological and financial harm it says such games can cause. Nazara Tech's ( opens new tab stock slumped on Wednesday after a Reuters report on the proposed bill, and declined 11% on Thursday - on track to lose 21% in two sessions, its steepest two-day fall. Other gaming-related companies such as Delta Corp ( opens new tab fell about 3% on Wednesday after the report, and extended its losses to fall 2% on the day. The Indian market for such gaming is set to be worth $3.6 billion by 2029, venture capital firm Lumikai said.
Daily Mail
38 minutes ago
- Daily Mail
Supermarkets are NOT profiteering and Sir Ed Davey was wrong to 'cajole' watchdog - but food prices will keep rising, says City broker
City analysts have defended supermarket pricing and criticised Sir Ed Davey for encouraging accusations of price gouging levelled at the sector. The Liberal Democrat MP and leader 'squeezed' and 'managed to cajole' the Competition and Markets Authority into probing supermarkets in 2023, analysts at broker Shore Capital alleged this week. In a note, analysts said food inflation had 'understandably spiked in in 2020 'in the backwash of Putin's malevolence in 2022', when Russia invaded Ukraine. 'That did not stop Sir Ed, ex-Post Office Minister (think Horizon) from cheaply suggesting supernormal supermarket profitability', they added. Shore Capital said British supermarkets were not 'supernormal profiteers' and noted that their trading margins were slim. In May 2023, the CMA launched an investigation into claims supermarkets were profiteering off high food prices. The Lib Dems were the only political party calling for this investigation at the time. In July 2023, a preliminary report by the CMA found that the groceries retail market was broadly competitive in Britain. The CMA said in July 2023 that it not not appear that high price inflation for groceries was the result of weak or ineffective competition between retailers, adding that supermarket profit margins were 'historically low'. In a second report in July 2024, the CMA said it did 'not find evidence that groceries inflation is being driven at an aggregate level by weak competition between retailers'. According to Shore Capital's note this week, Davey 'said absolutely nothing' after the CMA published their findings. A Liberal Democrat spokesperson told the Daily Mail: 'We won't be taking any lectures on this. 'Families have been hit hard by rising food prices and it's right that we explore every avenue to bring them down. 'The CMA exposed how supermarkets have been ripping off motorists at the pump, and it's the regulator's job to make sure they can't rip off shoppers at the till too - especially whilst they also battle with sky high bills and stagnant wages. 'Meanwhile the farmers who put food on our tables and look after our countryside are being squeezed from all angles, clobbered by the farmers tax, declining incomes and cuts to much needed support. 'Liberal Democrats will unashamedly always stand up for hardworking families and British farmers.' What's happening to food inflation now? Food inflation in Britain remains high. Many households are being forced to fork out more for the basics at the checkouts in supermarkets. Grocery price inflation fell marginally from July to August, but consumers are still trying to make savings due to the high cost of essentials, data from market researcher Worldpanel by Numerator showed on Tuesday. On Wednesday, the Office for National Statistics said the 12-month inflation rate for food and non-alcoholic beverages was 4.9 per cent in July, up from 4.5 per cent in the year to June. In the five years to July, the price of food and non-alcoholic drinks rose by around 37 per cent. Shore Capital has claimed the Labour government was squarely to blame for higher food inflation over the last year. It said: 'The prime causes of current UK food inflation are pretty clear to us, the policies of the British government. 'From the National Insurance 'raid', to the notably above CPI National Living Wage (NLW) award, plus packaging taxes, the State is hammering the hospitality and retail sectors of the UK, evident now in business closures (e.g., public houses) and easing sectoral employment levels.' Shore Capital warned of worse to come for food inflation amid, among other polies, higher rates for larger stores, the upcoming National Living Wage hike and implementation of the Employment Bill. Analysts at the investment firm expect food inflation to reach between five and six per cent by Christmas and remain 'elevated' for much of the first half of 2026. 'UK food inflation is going to remain fulsome through to at least spring 2027', Shore Capital said on Wednesday. In turn, the note claimed that real living standards in Britain look set to 'contract to mid-2027.' Chancellor Rachel Reeves said on Wednesday, said: 'We have taken the decisions needed to stabilise the public finances, and we're a long way from the double-digit inflation we saw under the previous government, but there's more to do to ease the cost of living. 'That's why we've raised the minimum wage, extended the £3 bus fare cap, expanded free school meals to over half a million more children, and are rolling out free breakfast clubs for every child in the country. 'Through our Plan for Change we're going further and faster to put more money in people's pockets.' How big are supermarket trading margins? Summing up its thoughts on Davey, Shore Capital's analysts said: 'Whilst Ed Davey no doubt moved onto Thorpe Park or the like, his shallowness has had some beneficial use to us, as it showed not just the competitiveness of the British grocery retail scene but also the real challenge of food system profitability in the UK.' Using the group's latest annual results, Shore Capital said Marks & Spencer's last post-tax trading margin was 5.4 per cent, which is expected to dip this year following the cyber attack. Sainsbury's, with a 15 per cent slice of the grocery market, saw its last annual trading margin come in at 3.2 per cent, while Tesco's, Britain's biggest supermarket, was 4.3 per cent, according to Shore Capital. 'For FY26 both retailers [Sainsbury's and Tesco] are guiding to lower year-on-year return on sales due to sector competitiveness', Shore Capital said. Using historic Companies House data, Shore Capital claimed Asda's operating margin was 'negative' in 2022, but in positive territory the following year. Aldi's 2023 figures revealed a margin of around 3.1 per cent, Shore Capital added, noting that trading margin data was trickier to find for certain grocers. According to Shore Capital's analysis, in the year to March 2025, Iceland's trading margin was 2.1 per cent. For 2024, Lidl's margin was around 2 per cent, it added. For the year to October 2024, Morrisons' trading margin came in at 0.1 per cent, the note said. Shore Capital analysts said: 'With UK supermarket trading margins largely under around 5 per cent alongside, on a longitudinal basis, frankly poor returns on capital employed, especially compared to many other industries, we find it quite bizarre that the grocery sector comes under such unreasonable ongoing scrutiny, acknowledging the necessity and ubiquity of food.' It claimed Britain's food system 'needs to be profitable to feed the nation.' The note added: 'Profitability is currently materially challenged by UK Government policy, so much so that, as we argued in our recent note on food prices, 90 per cent of current inflation can be attributed to the State, that is 4 per cent and rising UK food prices are not due to commodities, crude oil, or currency movements, but dictates like the National Insurance raid, the NLW and taxes like Extended Producer Responsibility (EPR). 'And so, should the likes of Sir Ed Davey once again call upon the CMA to investigate the food market and the role of supermarkets in food prices, especially around super-normal returns, we suggest he thinks again, and asks the likes of the Chancellor of the Exchequer, the Energy Secretary and the Minister for the Environment for an explanation.' Sir Ed Davey was contacted before publication but did not provide any comment.
Reuters
an hour ago
- Reuters
India government has not quantified loss to exchequer due to tax cuts, says state minister
MUMBAI, Aug 21 (Reuters) - India's federal government has not quantified the loss to the exchequer due to a lowering of the goods and services tax rates but a state ministers' panel has endorsed the new rate structure, state ministers said on Thursday. India's government plans to slash the consumption tax it charges consumers and businesses by October, and proposed a two-rate structure of 5% and 18%, doing away with the 12% and 28% tax imposed on some items, a top official said last week. The states ministers' panel also recommended high-end luxury cars and other luxury items, or the so-called sin goods, be taxed at a new rate of 40%, another state minister said.
