Name: Why a U.S.-India trade deal could change RBI’s next move
Uploaded: 2025-11-13T09:28:22.695Z
Duration: 3 min 31 s
Description: Radhika Rao, Senior Economist and Executive Director at DBS Bank, discusses the Reserve Bank of India’s upcoming December policy meeting. Rao says there’s a good chance of a rate cut, citing easing inflation and a supportive growth environment that give the central bank room to act.

Radhika Rao, Senior Economist and Executive Director at DBS Bank, discusses the Reserve Bank of India’s upcoming December policy meeting. Rao says there’s a good chance of a rate cut, citing easing inflation and a supportive growth environment that give the central bank room to act.

New Delhi

The Reserve Bank of India faces a challenging policy decision as core inflation trends downward and growth forecasts remain robust. October inflation reached a series low, and November is expected to follow suit, while growth for fiscal 2026 is projected to exceed 7%. 

Amid these domestic factors, the possibility of a U.S.-India trade deal could reduce pressure on the RBI to cut rates. While currency considerations and U.S. Federal Reserve actions are monitored, the RBI's policy remains primarily driven by domestic growth and inflation outlooks. The timing and outcome of the trade deal are expected to play a significant role in the central bank's upcoming decision.

Why a U.S.-India trade deal could change RBI’s next move

Given core inflation is still elevated there is tariff uncertainty. Should RBI save its firepower and not cut in December. Suddenly I think it's going to be a very close call because of two reasons. Like you rightly mentioned inflation has been on a downtrend. In fact October inflation was at a series low at zero point three percent and not too far from what our forecast was. And then you are also looking at a November that's going to be quite tepid. I would say under zero point five percent as well at this point. So with this kind of an inflationary backdrop you have an inflation undershoot but growth overshoot to mean growth is likely according to our own forecast are going to be stronger than 7 percent in fiscal 26. That's the annual year that we are in. Given this kind of a combination certainly for the central bank it's not an easy decision to be made. But yet I think when you saw them speak the governor speak in October it did seem like you know he was sign of signaling a dovish pivot and to mean that you know if there is space they would go ahead and cut rates. At this point they can't highlight growth risks at least near term. But I think they could mention that inflation is has is low and we are going to revise down on inflation forecast and hence that opens up a bit of space. Of course they could also reflect forward looking inflationary risks. And the third dimension to watch out for is the U.S. India trade deal something that you mentioned at the very beginning. If that comes out suddenly that lowers the pressure for them to cut rates. So net net we do think that this is going to be this going. I think that the data has data has created a bit of a policy debate. But we see a slightly more than even chance that there's likely to be a cut. All right. Slightly more than even chance with uncertainty about a Fed cut in December. Should the RBI hold off cutting to avoid further weakening of the INR. Separate question related to the rupee. Suddenly I think Fed does a Fed what a Fed does does figure in the central bank's play you know dashboard. But I don't think it's something that they attribute too much of weightage to. I think it's still very much domestic driven and domestic considerations given from that point of view. I think what will matter to them certainly is what the growth is doing and what inflation outlook is going to be in so far as the currency is concerned. I do think you know when we follow the currency movement this year up until April me in fact you see dollar rupee kind of tracking what the broader dollar was doing. And thereafter as these tariff rates became known you've actually seen a tear between where the dollar is and where the rupee is in some amount of underperformance in the current in the rupee. I do think that trade deal if imminent if announced sometime mid-November would provide us a bit of a breather to the currency and weakness in the currency at this point when energy prices are low means that inflationary risk is also not that big. So I would say yes currency matters but I think they would perhaps prefer to do a bit of an intervention attempt on it rather than try to fine tune the currency because of policy rates. So yes I do think that it would matter to them but weightage will not be as high as the other macro considerations. OK since you are really mentioning this point that we may have to effectively wait for a tariff deal to decide and that will be a big factor.

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