India’s central bank cuts rates more than expected to boost growth
Reserve Bank of India (RBI) governor Sanjay Malhotra arrives for a press conference after the monetary policy review. This was at RBI headquarters in Mumbai on June 6, 2025. (Photo by Indranil MUKHERJEE /AFP)
MUMBAI, India — India’s central bank cut interest rates more than expected on Friday. For this, the Reserve Bank of India (RBI) cited muted inflation and a need to kickstart economic growth. This happened as the impact of US tariffs weighed on the country’s outlook.
The RBI lowered the benchmark repo rate, the level at which it lends to commercial banks. This went down by 50 basis points to 5.5 percent.
A majority of analysts had expected a 25-basis-point reduction.
The cut was RBI’s third in a row. This comes a week after government data showed India’s economy expanded at its slowest pace for four years in the fiscal year that ended in March.
READ: Why a flare-up between India and Pakistan over Kashmir matters
The January-March quarter showed signs of a rebound, with a forecast-topping 7.4 percent year-on-year growth. Still, analysts said US President Donald Trump’s sweeping tariffs posed risks to the outlook.
Easing price concerns have also allowed the RBI to concentrate on growth. Retail inflation dropping to a near six-year-low of 3.16 percent in April.
RBI governor Sanjay Malhotra said India’s growth remained “lower than our aspirations” in a “challenging global environment.” He said it was necessary to continue stimulating domestic consumption and investment.
“This changed growth inflation dynamics calls for not only continuing with the policy easing, but also frontloading the rate cuts to support growth,” Malhotra said.
Central bank assumes ‘neutral’ stance
He added that the monetary policy committee had changed its stance from “accommodative” to “neutral.” This implies that a rate cut is not guaranteed at its next review meeting.
The central bank also threw in a liquidity-boosting measure by cutting the cash reserve ratio, by 100 basis points to 3 percent. Is it the proportion of deposits that banks must set aside with the RBI.
The RBI cut rates for the first time in nearly five years last February and followed up with another reduction in April.
The Indian government has forecast above-average monsoon rains, which observers say should help growth. Higher agricultural output will aid the rural economy and keep vegetable prices stable.
But Trump’s protectionist policies could add to growth pressures.
READ: Bangko Sentral ng Pilipinas sees at least two more rate cuts in 2025
India is not a manufacturing powerhouse. But experts believe that US tariffs will hurt billions of dollars of Indian exports across different sectors. These include gems and jewelry, electronics and seafood.
Also, India is hammering out the first tranche of a trade deal with Washington. Negotiators have made several trips over the past three months.
The White House is pushing for India to drop levies on a range of products, including agricultural produce and automobiles. Meanwhile, local media reports say that New Delhi is seeking greater access for labor-intensive exports such as textiles and footwear.
US Commerce Secretary Howard Lutnick said this week that a trade deal between the two countries could be expected in the “not too distant future.”
