A macro tightrope walk: Balancing domestic slowdown, global challenges

The challenge for macro policy is to respond to the domestic slowdown without appearing to let its guard down against a hostile global environment

Macroeconomic policymaking in India has its work cut out in 2025.

 

First, American exceptionalism has induced a significant tightening of global financial conditions. Not only has resilient growth in the United States (US) outperformed other developed economies but has made the last mile of disinflation challenging. Market expectations of easing by the US Federal Reserve have waned from five cuts to just one in 2025. Consequently, US 10-year bond yields have tightened 100 basis points since September and the dollar index is approaching 20-year highs. This has put enormous pressure on emerging-market currencies and the rupee has been no exception.