US Tariffs Pose Downside Risk to Demand

The India-US trade policies pose a downside risk to aggregate demand, which is holding up so far due to benign financial conditions along with ongoing transmission of rate cuts, supportive fiscal measures and rising household optimism, the Reserve Bank of India's (RBI) monthly State of the Economy report said.

- MANOJIT SAHA

The report also said inflation outlook for the near term has become more benign than anticipated earlier and headline inflation is likely to soften further below the 4 per cent target in the second quarter before inching up in the last quarter of the financial year. "Overall, the average headline inflation this year is expected to remain significantly below the target," it said.

Monetary policy, going forward, the report said, would continue to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path.

The report further said that the sovereign rating upgrade by S&P bodes well for the bond markets while enhancing the credibility of monetary policy, and it may lead to lowering borrowing costs. "India's sovereign rating upgrade by S&P bodes well for capital inflows and sovereign yields, going forward," the report said.