In a bid to support India’s slowing economy amid rising global uncertainties, the Reserve Bank of India (RBI) on Wednesday cut its benchmark repo rate by 25 basis points to 6.00%, marking the second consecutive rate reduction this year. The central bank also shifted its monetary policy stance from ‘neutral’ to ‘accommodative,’ signaling potential room for further rate cuts.
The move comes in the wake of the United States imposing 26% tariffs on imports from India, a development that has added to global trade tensions. India now becomes the second central bank after New Zealand’s to reduce rates following the announcement of the fresh U.S. levies.
The Monetary Policy Committee (MPC), which comprises three RBI officials and three independent members, voted unanimously in favor of the rate cut. This follows an earlier quarter-point reduction in February—the first since May 2020.
RBI Governor Sanjay Malhotra acknowledged the growing global economic turmoil, noting that the new U.S. tariffs have increased uncertainty, though the exact impact on India’s growth is hard to measure. "Growth is showing signs of recovery after a weak first half of FY 2024-25, though it remains below desired levels," he said, while describing the inflation outlook as favorable.
The revised policy stance now limits the MPC’s choices to either maintaining current rates or further easing, without any immediate link to liquidity conditions, Malhotra clarified.
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Economists welcomed the move. “Given the spillover of global disruptions and India’s own growth challenges, deeper rate cuts may be required,” said Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank. She projected that the RBI may trim rates by another 75-100 basis points over the coming year, depending on the extent of the global slowdown.
The RBI’s accommodative shift signals its readiness to act proactively to shield the economy from external shocks and support domestic demand.
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