NewKerala.com

RBI May Cut Rates If India-US Trade Deal Delays, Says Goldman Sachs

Goldman Sachs analysts state that a prolonged delay in finalizing the India-US trade deal beyond Q1 FY27 could create growth headwinds, potentially prompting the RBI to use its policy space for further rate cuts. They note India's consumption recovery, particularly in rural and lower-income segments, is in early stages, supported by good crops and government transfers. However, growth among affluent and middle-income groups is slowing due to job concerns and AI impact. While real GDP growth remained strong at 7.6% in 2025, nominal GDP growth hit a six-year low excluding the pandemic period, primarily due to low inflation.

Key Points: RBI Rate Cuts Possible if India-US Trade Deal Delayed

  • Trade deal delay may trigger RBI rate cuts
  • Rural & low-income consumption recovery ongoing
  • Affluent consumer growth slowing
  • Nominal GDP at 6-year low ex-pandemic
  • Govt using tax cuts to support demand
2 min read

RBI may cut rates further if India-US trade deal is delayed: Goldman Sachs

Goldman Sachs warns delayed India-US trade deal could prompt RBI rate cuts to support growth, despite strong consumption recovery.

"if the agreement is pushed... it could create growth headwinds - Santanu Sengupta"

Mumbai, Jan 25

India's strong economic fundamentals continue to support a healthy growth outlook, but prolonged uncertainty over the India-US trade deal could push the Reserve Bank of India to step in with further rate cuts.

According to Goldman Sachs, if trade-related headwinds persist beyond the first quarter of FY27 and start weighing on growth, the RBI may use its remaining policy space to support the economy through additional monetary easing.

The brokerage said India's mass consumption story, especially in rural areas and among lower-income households in cities, is still in the early stages of recovery.

This recovery is being supported by a good crop cycle, higher state-level transfer payments to women in lower-income families and GST cuts that benefited the bottom end of the consumption ladder.

Goldman Sachs believes these factors are helping demand gradually pick up, even though broader global uncertainties remain.

In an interaction with NDTV Profit, Santanu Sengupta, Chief India Economist at Goldman Sachs, said the India-US trade deal is expected to be finalised by the first quarter of FY27.

However, he warned that if the agreement is pushed beyond this period and into the second half of the next financial year, it could create growth headwinds.

In such a situation, the government and the Reserve Bank of India may need to use their policy space to support the economy.

Sengupta explained that while India's overall consumption outlook remains positive, the picture is mixed across income groups.

The affluent segment of consumers, which includes the middle and top income groups, saw strong growth after the Covid-19 pandemic but is now showing signs of slowing.

He added that the middle-income segment faces challenges due to concerns around job creation and the increasing use of artificial intelligence.

On the policy front, the central government moderated its fiscal consolidation in FY26 and shifted focus towards supporting consumption through income tax and consumption tax cuts.

This helped India record a strong real GDP growth of 7.6 per cent year-on-year in calendar year 2025. However, nominal GDP growth fell to a six-year low, excluding the pandemic period, mainly because of very low inflation.

- IANS

Share this article:

Reader Comments

R
Rohit P
Why is our economy so dependent on a US trade deal? We should be strengthening our domestic market and trade with other nations too. RBI rate cuts are a temporary fix. Real growth needs more manufacturing and better policies for MSMEs.
A
Aditya G
The analysis about mass consumption recovery is spot on. In my village, the direct transfers to women and good rains have definitely put more money in hands. But inflation is still a worry. Hope any rate cuts don't fuel it further.
S
Sarah B
As an expat following Indian markets, the nominal GDP growth falling to a six-year low is concerning, even with strong real growth. It points to very weak pricing power. The RBI has a tough balancing act ahead.
K
Karthik V
The mention of AI impacting middle-income jobs is the real story here. We need a national strategy for upskilling, not just rate cuts. The future of work is changing fast and policy needs to catch up.
M
Meera T
Good to see the report acknowledging the positive impact of GST cuts and transfers to women. These are pro-poor measures that work. Hope the trade deal gets sorted soon, but domestic policy should remain the priority. Jai Hind!

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Leave a Comment

Minimum 50 characters 0/50