Citi, Goldman Sachs expect further RBI rate cuts after U.S. tariffs on India

Investing.com -- Analysts at Citi and Goldman Sachs (NYSE:GS) expect additional rate cuts from the Reserve Bank of India (NSE:BOI) after the US imposed a 27% reciprocal tariff on Indian exports, which could weigh on economic growth.

Citi now sees three more 25-basis-point rate cuts, up from two previously, bringing the total easing in the current cycle to 100 bps. Goldman Sachs also forecasts 100 bps of rate cuts, with 25 bps reductions in both the second and third quarters of 2025.

The tariff increase raises the weighted average tariff rate on Indian exports to the U.S. to about 25%, with pharmaceuticals and petroleum largely exempt, Citi said.

It estimates a potential 50-basis-point drag on GDP, with growth slowing by around 40 bps if the tariffs persist. Trade negotiations could mitigate some of the impact, it added.

Goldman Sachs expects a 30-bps drag on 2025 GDP growth from the tariffs, with an additional 20-bps hit from weaker services exports amid slowing U.S. growth.

The firm lowered its full-year 2025 and fiscal 2026 real GDP growth forecasts by 30 bps and 20 bps, respectively, to 6.1% year-on-year.

Citi noted that India is negotiating a bilateral trade deal, which could be reached in the second half of 2025, and has increased energy imports from the U.S. Goldman Sachs said it anticipates some tariffs being revised lower through negotiations.

Both banks do not expect a fiscal policy easing response, citing the Indian government's focus on fiscal consolidation.

The RBI has allowed exchange rate volatility, with Citi forecasting the rupee at around 87 per U.S. dollar in the next 9-12 months.

On equities, Citi said the tariff impact on index-level earnings could be limited, though sectors such as auto ancillaries, chemicals, and select industrials may face pressure.

Goldman Sachs noted that further growth cuts remain a risk depending on tariff negotiations.