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

The Reserve Bank of India (RBI) lowered its key repo rate on Wednesday for a second consecutive time and changed its monetary policy stance signalling room for more cuts ahead, as it seeks to boost the sluggish economy, which is facing further pressure from U.S. tariffs.

As expected, the Monetary Policy Committee (MPC), which consists of three RBI and three external members, cut the repo rate by 25 basis points to 6.00%. It started reducing rates with a quarter-point reduction in February, its first cut since May 2020.

The central bank changed its stance to “accommodative” from “neutral”.

Indian equity markets have fallen 4% since U.S. President Donald Trump’s tariff announcements and economists estimated growth in the world’s fifth-largest economy could be hit by 20-40 basis points in the current fiscal year.

The RBI now estimates growth at 6.5%, slightly lower than its earlier estimate of 6.7%. It sees inflation at 4% compared to 4.2% earlier.

Tariff measures announced by the U.S. have exacerbated uncertainties but quantifying the impact of this on growth is difficult, central bank Governor Sanjay Malhotra said in his statement.

“Growth is improving but remains lower than what we aspire for,” said Malhotra, adding that the inflation outlook is benign.

All six MPC members voted to cut the repo rate.

The change in the policy stance means the MPC is considering only two options, either status quo or a rate cut, and the stance does not directly link to liquidity conditions, he said.

India’s benchmark 10-year bond yield was marginally lower at 6.50% after the announcement, against 6.51% before the announcement, while the rupee was a tad down at 86.61 from 86.58 before the decision. The benchmark equity indexes were down around 0.3% each.

“We note the increasing global turmoil and its spillovers to the Indian growth slowdown will necessitate the MPC for deeper rate cuts,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

“We see scope for an additional 75-100 bps of rate cuts in the year ahead depending on the scale of global slowdown,” she said.

Source: Reuters
–Agencies