India central bank cuts rates, changes stance to ‘accommodative’ as US tariffs add to growth risks

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MUMBAI: The Reserve Bank of India (RBI) on Wednesday reduced its key repo rate for the second consecutive time and changed its monetary policy stand signaling room for more deductions, as it tries to promote a slow economy in comparison to fresh US taxes.

India became the second central bank after the New Zealand Reserve Bank to reduce interest rates after the announcement of widespread trade revenue. Prices have increased the risk of global slowdown and US recession, while giving rise to financial riots, emerging market banks face a severe choice between the reduction of rates to support growth and accelerate their fragile currencies.

India’s Financial Policy Committee (MPC), which consists of three RBIs and three external members, reduced the repo rate by 25 points. It began to reduce the rates with a quarterly point in February, the first deduction after May 2020. The central bank also turned its position into “neutral” to “accommodation”.

Central Bank Governor Sanjay Malhotra said in his statement that 26 % of the rates announced about imports from India have increased uncertainty but it is difficult to increase the impact on growth.

“In the first half of the fiscal year 2024-25, growth is improving after weak performance, though it is still less than what we want,” said Malahutra.

All six MPC members voted in favor of reducing the repo rate and changing the policy position. He said the change in the position means that the MPC is considering only two options, either deduction in stagnation or rate, and does not link directly to the liquidity conditions.

“There is a possibility of further rates to be cut, with the US trade policy,” said Shalin Shah, the deputy chief of the capital Economics, said.

“We think the rate of repo will be 5.5 percent this year,” Shah said in a note. ANZ Research also expects two more rates to decline and look at them by August 2025.

Growth, cut inflation forecast

The RBI rate is now 6.5 %, which is slightly less than 6.7 percent less than its first estimate. Prior to this, inflation is 4.0 % compared to 4.2 %.

The committee said in its written statement, “In such a difficult global economic situation, the point of view of benign inflation and moderate growth demands that the MPC continue to support development.”

After the announcement, the Indian benchmark 10 -year bond production was 6.5 percent, before it was a bit compared to 6.51 percent, while the rupee had changed slightly to 86.57. The Benchmark Equity Index increased its losses and was about 0.6 % lower in each.

Economists have estimated that growth in the world’s fifth largest economy can be targeted at 20-40 points this fiscal year, which can lead to high and indirect results.

“We see growth on the RBI estimates and expect 6.3 percent of it in the financial year 2026,” said Sakshi Gupta, HDFC Bank Principal economist.

The weakness of the rupee

In a report on the monetary policy, the central bank said the risk of increasing trade reservations and currency wars could put more pressure on the rupee.

The report states that if the rupee goes out of 5.0 % on the current assumption of its current US $ 86, inflation may increase by about 35 35 BPS, though GDP growth can benefit about 25 25 BPS through commercial channels as exports will be more competitive.

Malhotra said the central bank’s currency management policy would continue to target “additional fluctuations”. He said, the RBI does not target any level on the rupee, but if there is more fluctuations, it will not be ashamed to interfere.

After the announcement of US mutual rates, the rupee has decreased by 1.2 %, which is due to the losses found in large Asian allies. It targeted the lowest level of 87.95 on February 10.