Mumbai’s financial circles are buzzing with warnings from Goldman Sachs that the Reserve Bank of India (RBI) could slash repo rates again if the much-anticipated India-US trade deal faces further delays. In a detailed analysis, the global investment bank highlights how prolonged trade uncertainties could crimp economic growth, prompting the central bank to ease monetary policy for support.
Goldman Sachs points out that trade challenges persisting into the first quarter of fiscal year 2027 might weigh heavily on India’s growth trajectory. To counter this, the RBI may opt for additional rate cuts to stimulate activity and bolster expansion. This comes at a time when consumption recovery remains fragile, particularly in rural areas and among lower-income urban households.
Positive factors like bumper harvests, cash transfers to women from low-income families under state schemes, and GST reductions have started aiding bottom-tier consumers. These elements are gradually nudging demand upwards, even amidst global headwinds. However, the recovery is still nascent and vulnerable to external shocks.
In an exclusive interview with NDTV Profit, Goldman Sachs’ Chief India Economist Shantanu Sengupta forecasted the trade agreement finalization by Q1 FY27. But he cautioned that any slippage into the second half of the next fiscal year could create significant hurdles for growth, necessitating coordinated policy responses from both the government and RBI.
Sengupta elaborated on consumption patterns, noting a positive outlook overall but with stark disparities across income groups. Post-COVID, high-income consumers drove robust spending, but signs of slowdown are emerging now. The middle class grapples with job creation worries and rising AI adoption, adding to pressures.
On the policy front, the central government softened its fiscal consolidation pace for FY26, prioritizing consumption boosts via income tax and consumption tax cuts. This strategy propelled real GDP growth to a sturdy 7.6% in calendar year 2025. Yet, nominal GDP growth hit a six-year low outside pandemic years, largely due to subdued inflation.
As India navigates these dynamics, eyes remain on trade negotiations and RBI’s next moves. Further delays could tilt the balance toward more accommodative policies, underscoring the interconnectedness of global trade and domestic monetary decisions.