RBI cuts repo rate: US tariff hike has minimal impact on Indian economy, says Reserve Bank governor
RBI lowered inflation forecast to 2% from 2.6%; and raised its GDP growth projection to 7.3%, from the previous estimate of 6.8%, for the ongoing fiscal year
The massive trade tariffs imposed by US President Donald Trump on India have “minimal impact on the economy”, according to Reserve Bank of India governor Sanjay Malhotra. He said this in a press interaction after India's central bank on Friday, December 5, cut the benchmark interest rate for the first time in six months.
The six-member monetary policy committee, led by governor Malhotra, voted unanimously to lower the repurchase or repo rate by 25 basis points to 5.25 per cent. This is the fourth rate cut by the RBI since February 2025.
Repo rate is the interest rate at which banks borrow money from the RBI — a lowering of repo rate thus usually means a lowering of consumer loan interests too. This is likely to boost liquidity, hence more money with the citizens to spend.
The RBI earlier reduced repo rate by 25 basis points each in February and April, and 50 basis points in June.
"Inflation at a benign 2.2 per cent and growth at 8.0 per cent in H1 2025-26 (April-September of 2025-26 fiscal year) present a rare goldilocks period," Malhotra said while announcing the monetary policy decisions.
The RBI also lowered its inflation forecast for the fiscal year to 2 per cent from 2.6 per cent. It raised its GDP growth projection to 7.3 per cent, from the previous estimate of 6.8 per cent.
"Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience and is poised to register high growth," Malhotra said
With its move to lower the repo rate, the RBI also seems to have shrugged off concerns over the fall in the Indian rupee, which breached 90 to a dollar this week. The currency is down almost 5 per cent against the dollar this year, the worst performer in Asia.
Indian exports have plunged after US President Donald Trump slapped a 50 per cent tariff on goods from the country, half of this rate as “penalty” for buying oil from Russia despite the war in Ukraine.
India has stressed its sovereignty in decision-making, and Russian President Vladimir Putin is in fact on a state visit to India currently, holding summit talks with PM Narendra Modi.
(with PTI inputs)
