Geopolitics and economics will remain the key theme for CY2025 as Trump presidency begins in the US. The year will likely be dominated by US policies, specifically, on trade and immigration. Besides the direct impact on economies, the indirect impact through higher inflation risks in the US and consequent higher neutral interest rate will create headwinds for most economies (more for EMs), given the inherent USD strengthening bias.

At the same time, the domestic growth slowdown in India and inflation slowly trending towards 4% will lead the MPC to embark on a rate cutting cycle in CY2025. The RBI’s cautiousness can however stem from inflation declining very slowly on account of continuing food price volatility risks and from risks of a shallower-than-anticipated rate-cut cycle in DM central banks.