India’s Reserve Bank of India (RBI) has reduced its repo rate by 25 basis points to 6%, marking the second cut this year, as the country grapples with slowing economic growth exacerbated by U.S. tariffs imposed by President Donald Trump.
The central bank also revised its GDP growth projection for the current fiscal year from 6.7% to 6.5%, citing trade disruptions and global uncertainties.
RBI Governor Sanjay Malhotra highlighted that heightened trade frictions are unsettling global economies, impacting domestic investment and export potential.
The RBI shifted its monetary policy stance to “accommodative,” signaling openness to further rate cuts to bolster growth. Economists predict deeper rate reductions, potentially totaling 100 basis points this year, as moderating inflation provides room for easing monetary policy.
U.S. tariffs of up to 27% on Indian goods are expected to directly impact exports and foreign inflows, with analysts estimating a GDP slowdown of up to 40 basis points.
The RBI’s warning comes amid growing fears of a global recession, with Wall Street bank JP Morgan estimating a 60% likelihood of such a scenario.
Moody’s also raised its recession probability forecast from 15% to 35%, citing prolonged trade tensions and weaker demand. India’s export-dependent sectors, including textiles and engineering goods, face immediate pressure as U.S. tariffs take effect, while foreign portfolio investors remain cautious amid global market volatility.
India is simultaneously pursuing a delicate diplomatic strategy, aiming to finalize a bilateral trade deal with the U.S. to mitigate tariff impacts. Foreign Minister S. Jaishankar recently emphasized progress in talks with U.S. officials, but analysts caution that even a successful agreement may not fully shield India from a global slowdown.
With government spending and tax revenues stagnating, the burden of reviving growth increasingly falls on monetary policy, leaving the RBI with limited tools to counter external shocks. While India retains its status as the world’s fastest-growing major economy, its growth trajectory remains vulnerable to escalating trade wars and weakening international demand.
Source: BBC NEWS
