In the face of the tariff war, both India and New Zealand lowered interest rates today, while Japan is considering direct cash payments

Multiple central banks are accelerating their easing measures to alleviate domestic economic pressures in response to the trade shocks caused by Trump's tariff policies.

The Reserve Bank of New Zealand and the Reserve Bank of India both cut interest rates by 25 basis points on Wednesday. New Zealand warned that Trump's tariff policies could quickly suppress global demand, while the Reserve Bank of India pointed out that domestic economic improvement was below expectations and that the U.S. tax increases had exacerbated uncertainty, thus prioritizing support for economic growth. Meanwhile, Japan plans to use additional budgets to distribute cash subsidies of up to 50,000 yen to all citizens.

Reserve Bank of New Zealand Warns of Tariff Risks

On Wednesday, the Reserve Bank of New Zealand lowered the official cash rate (OCR) from 3.75% to 3.50% as expected, continuing a series of rate cuts since mid-2024. The main reasons include cooling inflation and the need to stimulate recovery from a previously sluggish economy.

There are two key backgrounds behind New Zealand's rate cut. On one hand, although the economy has begun to recover, economists believe the pace of recovery will be relatively slow. On the other hand, the Reserve Bank of New Zealand explicitly stated that the aggressive trade policies of the Trump administration could quickly drag down global growth, with effects likely to manifest soon. The Reserve Bank of New Zealand stated in its announcement:

"The committee noted that the impact of tariff increases will take time to fully transmit through the global economy. However, for economies imposing tariffs, the direct rise in commodity prices and the resulting weakness in global demand due to increased uncertainty will manifest relatively quickly."

The Reserve Bank of New Zealand also signaled the possibility of further rate cuts in the future:

"As the scope and impact of tariff policies become clearer, the committee will consider further rate reductions as appropriate."

India Lowers Growth and Inflation Expectations

On the same day, the Reserve Bank of India also announced a rate cut, lowering the key repo rate from 6.25% to 6.00%. This marks its second consecutive rate cut, with the policy stance shifting from "neutral" to "accommodative," indicating that there is still room for further rate cuts to boost an economy facing external pressures.

Notably, all six members of the Monetary Policy Committee (MPC) of the Reserve Bank of India unanimously approved the rate cut decision, demonstrating a high degree of consensus on policy. The Governor of the Reserve Bank of India stated in the announcement that although the domestic economy has shown some signs of recovery, the strength of the recovery is below expectations, and the new round of tariffs imposed by the U.S. on Indian goods, which can be as high as 26%, has further exacerbated uncertainty.

The market generally expects the Reserve Bank of India to continue cutting rates. Capital Economics predicts that India may lower rates to 5.50% this year. Australia and New Zealand Banking Group (ANZ) also expects two more rate cuts in India this year.

Additionally, the Reserve Bank of India has lowered its growth and inflation expectations, revising the economic growth forecast for the current fiscal year from 6.7% to 6.5%, and the inflation forecast from 4.2% to 4%.

The Reserve Bank of India emphasized that in the context of increasing global uncertainty, moderate domestic growth, and controllable inflation, priority should be given to supporting economic growth.

Some economists predict that due to the U.S. tariff increases, India's GDP growth rate may decline by 0.2 to 0.4 percentage points this year. HDFC Bank's Chief Economist Sakshi Gupta further pointed out that India's actual growth rate for the current fiscal year may only be 6.3%, lower than the Reserve Bank of India's forecast In terms of exchange rates, the Reserve Bank of India pointed out that trade protectionism and currency war conflicts will put pressure on the rupee.

Although the Reserve Bank of India does not set specific exchange rate targets, it stated:

"If there is excessive volatility, we will not hesitate to intervene."

Since the United States announced a new round of tariffs, the rupee has depreciated by about 1.2% against the dollar and hit a historical low of 87.95 on February 10.

Japan is brewing fiscal hedging, plans to issue cash subsidies

Meanwhile, the Japanese government is also brewing fiscal hedging measures.

According to reports, the government plans to use additional budgets to issue cash subsidies of 40,000 to 50,000 yen (approximately 260-330 USD) to all citizens as one of the measures to alleviate the impact of rising prices and U.S. tariffs. The subsidies will not have income thresholds and are expected to complete budget approval during the June parliamentary session