Indian central bank cuts rates to boost growth as tariffs take effect

NEW DELHI, INDIA: India’s central bank cut interest rates, as expected, and signalled more easing to come as it seeks to bolster Asia’s third-largest economy in the face of damaging US tariffs.

The Reserve Bank of India’s six-member monetary policy committee, headed by Governor Sanjay Malhotra, voted unanimously to lower the repurchase rate by 25 basis point to 6 percent, in line with a Bloomberg survey.

The MPC also shifted its policy stance to “accommodative” from “neutral”, which means it’s considering more rate cuts in coming months.

“Going forward, absent any shocks, the MPC is considering only two options: status quo or rate cut,” Malhotra said in a televised speech on Wednesday from Mumbai.

“The domestic growth-inflation trajectory demands monetary policy to be growth-supportive, while being watchful on the inflation front.”

Indian bonds were relatively shielded from the sharp selloff in US Treasuries as the central bank changed its stance. The sovereign 10-year bond yield is up 2 basis points to 6.49 percent, while rupee is at a three-week low, falling 0.4 percent.

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RBI’s decision comes less than an hour after Washington’s reciprocal tariffs kicked in, dealing a thunderous blow to the world economy. In his speech, Malhotra acknowledged the impact of disruptions in global trade on growth. “The recent trade, tariff related measures have exacerbated outlook across regions, posting new headwinds for global growth and inflation,” he said.

By cutting rates for two straight policy meetings, Malhotra has signalled that the central bank intends to support a slowing economy. The nation expanded 6.4 percent in the past fiscal year, its weakest pace since the pandemic, and economists predict a 20-40 basis point growth drag to tariffs this year.

The central bank chief also lowered growth outlook for the year that started on April 1 to 6.5 percent from 6.7 percent earlier. He pegged inflation at 4 percent compared to a previous forecast of 4.2 percent.

“The combination of downgrades to its GDP growth and inflation projections and the change in stance to accommodative all reinforce that this is a dovish cut,” said Sonal Varma, an economist at Nomura Holding Inc.

Economists are of the view that deep cuts are on the cards to further shield the economy. “We see scope for additional 75-1—basis points of rate cuts in the year ahead depending on the scale of global slowdown. Varma also expects the easing cycle to continue with quarter-point cuts each in June and August policy meetings.

Since taking office in December, Malhotra has pivoted to a more growth-friendly approach than his predecessor, Shaktikanta Das. He cut rates for the first time in five years in his debut policy meeting in February, and has injected more than $80 billion into the banking system in the last two months. On Wednesday, Malhotra said the RBI will continue to ensure there is ample money in the system.

India’s below target inflation last month and lower oil prices are also giving the RBI reason to stay with the looser policy settings.

“The MPC noted that inflation is currently below the target, supported by a sharp fall in food inflation,” the governor said. “There is now a greater confidence of a durable alignment of headline inflation with the target of 4 percent over a 12-month horizon.”