Chief economist update: No target sign on India's back

Trump and Xi's game of tariff poker goes on. Whether it's Trump's "art of the deal" tactic or a true blue (fallacious) plan to make "America Great Again," only Trump knows - problem is, China's Supremo isn't blinking.

To be sure, the prospect of an escalating trade war between the world's number-one and number-two biggest economies in the world is enough to get many investors quivering in their socks. Add volatility and the uncertainty of what Trump will do next into the mix - oh, and the "sell in May" dictum (which coincides with the May 1 expiration of the tariff exemption Trump granted to EU, Argentina, Australia, Brazil, Canada, Mexico and South Korea - and the chills, they'll be multiplying.

US Census Bureau data show that except for Argentina and Brazil, America imports more than it exports to these "sons of Trump" countries. China's exclusion from exemption is understandable because as at the end of 2017, it sold US$375.2 billion worth of goods to the US than it bought.

Speaking of which, India can count on its lucky stars - neither exempted nor reliant enough on Uncle Sam for its domestic fortune. India still exports more to the US than it imports (US$22.9 billion worth in 2017 or just around 6.0% of China's trade surplus with the US) but India's steel and aluminium exports account for only 4% and 1.0% of its total exports, respectively, as at 2017. Tariff increase away!

This gives India and the Reserve Bank of India (RBI) scope to focus more on the goings-on in the domestic economy more than shackled by the on-going trade war uncertainty.

So much so, that when the Indian central bank met on 5 April and kept monetary policy settings unchanged - repo rate unchanged at 6.0%; reverse repo rate at 5.75%; and, the Bank Rate at 6.25%.

There was no mention of the trade war as rationale for the decision. Instead, the RBI remained optimistic over the growth outlook:

"Turning to the growth outlook, several factors are expected to accelerate the pace of economic activity in 2018-19. First, there are now clearer signs of revival in investment activity as reflected in the sustained expansion in capital goods production and still rising imports, albeit at a slower pace than in January. Second, global demand has been improving, which should encourage exports and boost fresh investment. On the whole, GDP growth is projected to strengthen from 6.6 per cent in 2017-18 to 7.4 per cent in 2018-19 - in the range of 7.3-7.4 per cent in H1 and 7.3-7.6 per cent in H2 - with risks evenly balanced."

Its inflation forecast revised lower:

"The 6th bi-monthly resolution of 2017-18 in February projected CPI inflation at 5.1 per cent in Q4:2017-18; and in the range of 5.1-5.6 per cent in H1:2018-19 and 4.5-4.6 per cent in H2, including the HRA impact, with risks tilted to the upside."

At its latest meeting, the RBI said, "inflation in Q4:2017-18 is now projected at 4.5 percent."

That's still within the RBI's 4.0% +/- 2.0% inflation target, giving it scope for policy accommodation just in case India becomes Trump's target or is caught in the crossfire.

Read more: TrumpChinaRBIArgentinaBrazilAustraliaCanadaCPIEUMexicoReserve Bank of IndiaSouth KoreaUS Census Bureau
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