S&P cuts India’s FY26 GDP growth forecast to 6.5% amid rising US tariffs
New Delhi: S&P Global Ratings has revised India's GDP growth projection for FY26 to 6.5%, down from its earlier estimate of 6.7%, as it expects Asia-Pacific economies to face pressure from rising US tariffs and a broader pushback against globalisation, according to a PTI report.
Despite these external challenges, domestic demand momentum is expected to remain strong in most emerging markets, S&P noted in its latest Economic Outlook for APAC, the report said.
Assumptions and key economic drivers
The forecast is based on the assumption of a normal monsoon season and stable commodity prices, particularly crude oil. S&P expects factors such as cooling food inflation, tax benefits announced in India’s FY26 budget, and lower borrowing costs to support discretionary consumption.
RBI likely to cut interest rates further
The report projects that central banks across the APAC region will continue easing monetary policies throughout the year.
For India, S&P anticipates the Reserve Bank of India (RBI) will reduce interest rates by another 75 to 100 basis points (bps) in the current cycle, as declining food inflation and lower crude prices bring headline inflation closer to the RBI’s 4% target.
In its latest monetary policy review, the RBI had already lowered the repo rate by 25 bps, from 6.50% to 6.25%.
US tariffs and global trade uncertainty
S&P highlighted the rising trade protectionism in the US under President Donald Trump’s administration, which is impacting global economic conditions. The new US government has imposed additional tariffs, including:
20% extra duty on Chinese imports
25% levies on select imports from Canada and Mexico, with others temporarily delayed
A global 25% tariff on steel and aluminium
The US has also indicated plans to introduce "reciprocal tariffs" and additional duties on cars, semiconductors, and pharmaceuticals.
Impact on global and US economy
S&P warned that these tariffs could slow economic growth in the US and globally while raising US inflation. Due to the uncertainty surrounding US trade and economic policies, investment decisions in the US and other countries are being impacted.
The credit rating agency now expects the US Federal Reserve to cut its policy rate by just 25 bps in 2025, followed by three rate cuts in 2026, reflecting caution amid ongoing economic volatility.
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