The RBI has reduced the repo rate to 6.0% from 6.25%, marking the second consecutive cut under Governor Sanjay Malhotra. This decision, driven by softer inflation and easing oil prices, aims to support India’s economic growth amidst pressures like US tariffs.
* Monetary policy panel votes unanimously to cut repo rate by 25 basis points
* Second rate cut in five years may make loans further cheaper
Bibhudatta Pradhan / NEW DELHI
The Reserve Bank of India (RBI) lowered its key interest rate for the second time in five years to support a slowing economy hit by U.S. import tariffs that have further pressured growth.
The central bank’s Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, voted unanimously to cut the benchmark repurchase rate – the rate at which the RBI lends to banks – by 25 basis points to 6%. This marks the second consecutive rate cut, following a similar move in February.
The six-member policy committee also shifted its policy stance to ‘accommodative’ from ‘neutral,’ signalling a more growth-supportive outlook.
“The global economic outlook is fast changing. The recent trade tariff related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation,’’ Malhotra said. “The Indian economy has made steady progress towards the goals of price stability and sustained growth. On the inflation front, while the sharper-thanexpected decline in food inflation has given us comfort and confidence, we remain vigilant to the possible risks from global uncertainties and weather disturbances.’’
Wednesday’s decision aims to shield India’s economy, which is already grappling with stagnation and faces renewed challenges due to the newly imposed U.S. import tariffs. The RBI’s rate cut comes as the U.S. tariffs take effect globally Wednesday, highlighting the urgency of its response.
A 26% tariff by U.S. President Donald Trump could significantly affect India, a country heavily reliant on the U.S. export market. While other nations consider retaliatory measures, India has opted for a measured approach, holding out hope for a comprehensive trade deal that could bring long-term relief.
The economy’s slowdown has also nudged the RBI toward further rate reductions. India’s GDP is likely to expand at 6.5% in the financial year ended March 2025, its weakest pace since the pandemic. The situation could worsen due to unexpectedly high US tariffs. Some economists warn that the latest tariffs may dent India’s growth in the current financial year. However, others believe the economy may remain resilient, citing the relatively moderate U.S. tariffs on India compared to those on China or Vietnam, along with a decline in global oil prices.
Additionally, easing inflation—down to a seven-month low in February—and a sharp fall in crude oil prices have created room for the RBI to pursue further monetary easing, helping to support growth without compromising its inflation target.
With this rate cut, borrowers can expect lower monthly payments on home, car, and other loans.
The RBI has revised its growth forecast for the current financial year, expecting the economy to grow at 6.5%, slightly down from its earlier estimate of 6.7%. Inflation for the financial year, 2025-26 is projected at 4%, it said.
“While the risks are evenly balanced around these baseline projections, uncertainties remain high in the wake of the recent spike in global volatility,’’ said Malhotra. “ It may be noted that the growth projection for the current year has been marked down by 20 basis points relative to our earlier assessment of 6.7% in the February policy,’’ he said.
“The RBI has delivered a dovish 25bp rate cut. The combination of downgrades to its GDP growth and inflation projections and the change in stance to accommodative all reinforce that this is a dovish cut,’’ said Sonal Varma, chief economist at Nomura. “We believe the combination of direct and indirect effects will result in GDP growth slowing more sharply to around 6% in FY26, and risks are skewed to the downside. Hence, we expect the rate cutting cycle to continue, with a 25bp cut each in June and August.”
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