Signals for India from what global central banks did

The US Federal Reserve kept the benchmark interest rate unchanged at 4.25–4.5%, extending the wait for its first reduction of this year. Interest rates were last lowered in December. However, it indicated a 50 basis points (bps) reduction by the end of 2025, and two cuts of 25bps each in 2026 and 2027. The Bank of England, too, kept the benchmark rate unchanged at 4.25%, after two cuts earlier this year. At the other end of the spectrum, the Bank of Japan agreed to keep increasing rates if economic recovery continues, as per the minutes of its May policy meeting released on Friday.
The biggest sentiment overhang is Donald Trump's tariff turbulence, which is preventing central banks from cutting rates immediately. US Fed chair Jerome Powell said everyone is forecasting increases in inflation in the coming months 'because someone has to pay for the tariffs...between the manufacturer, the exporter, the importer, the retailer", adding some of the burden will fall on the consumer. Bank of England governor Andrew Bailey said while interest rates are gradually declining, the world is 'highly unpredictable". The impact of the Israel-Iran conflict on energy prices can further stoke inflation.
Also read | Mint Primer: What if the US joins Israel's war with Iran?
In a word, bleak. The Fed has projected US GDP growth slowing to 1.4% in 2025, from 2.8% in 2024. It sees unemployment rising to 4.5% and inflation inching up to 3% by the year-end, above its target of 2%. This points to a 'stagflationary" outlook for the world's biggest economy. BoJ said Japan's growth was likely to 'moderate" amid tariff uncertainties.
Also read | Mint Primer: US GDP contracts 0.3% in Q1—why the IMF still sees no recession
While government bond yields in advanced economies have seen intermittent spikes and stock markets have recovered from the initial tariff shock in April, gold has been the biggest beneficiary of the current climate. Gold prices have soared 30% since January and doubled over the past two years. Global central banks have accumulated over 1,000 tonnes of gold in each of the last three years, compared with 400–500 tonnes over the preceding decade. They are likely to buy more gold this year, says the World Gold Council.
Also read | Can bike taxis survive India's regulatory crackdown?
In contrast to the reticence shown by its global peers, Reserve Bank of India (RBI) has delivered a 50bps rate cut in June. But RBI governor Sanjay Malhotra acknowledged that the global economic situation remains 'fragile and fluid". From a market view, the impending rate cut by the Fed bodes well for Dalal Street as it might induce fresh buying by foreign funds. But the primary uncertainty remains Trump's tariffs. The much-awaited US-India trade deal is the biggest monitorable for domestic markets.
Also read | Primer: If most public shareholders say no, why do resolutions still pass?

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