In a bid to sustain non-inflationary economic growth, Reserve Bank of India (RBI) Governor Sanjay Malhotra announced a 25 basis point cut in the policy repo rate on Wednesday. This marks the second consecutive rate cut by the RBI’s Monetary Policy Committee (MPC) in 2025, a move aimed at making loans cheaper and boosting domestic economic activity.
RBI Targets Growth Despite Global Headwinds
Governor Malhotra highlighted that the global economy is navigating a period of heightened uncertainty, making monetary policymaking increasingly complex. He indirectly referred to escalating trade tensions, specifically the latest round of reciprocal tariffs unveiled by U.S. President Donald Trump, which came into effect just moments before the RBI’s announcement.
The rate cut aligns with market expectations, as analysts had widely predicted a 25 bps reduction amid easing inflation and the need to support growth. Lower repo rates typically lead to reduced lending costs for businesses and consumers, encouraging borrowing and investment.
Trump’s 26% Tariff on Indian Goods Raises Inflation Concerns
The central bank also acknowledged the significant impact of newly imposed U.S. tariffs on India’s trade outlook. President Trump has implemented a 26% reciprocal tariff on Indian goods, effective April 9, which experts warn could disrupt merchandise exports and contribute to inflationary pressures in the months ahead.
Governor Malhotra stated that while inflation is currently projected to remain at 4%, the central bank remains cautious. The evolving global trade environment, especially the Trump tariffs, could elevate import costs and dampen demand, potentially slowing India’s economic momentum.
GDP Growth Forecast at 6.5% for FY26
Despite global uncertainties, the RBI has maintained its GDP growth projection for India at 6.5% for FY26. The central bank believes that sustained monetary support, coupled with structural reforms, can help the economy navigate external shocks.
However, economists have sounded alarms about possible recessionary effects stemming from rising protectionism. The combination of higher input costs and muted global demand could weigh on both exports and domestic consumption.
What This Means for Borrowers and Businesses
With this latest repo rate cut, the benchmark interest rate now stands at [insert updated repo rate]. Borrowers can expect marginally lower EMIs on home and auto loans, while businesses may benefit from reduced borrowing costs, aiding capital expansion and operational liquidity.
Read More: RBI Monetary Policy: Repo Rate Cut by 25 Bps
