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In a significant move aimed at cushioning the Indian economy from global shocks, the Reserve Bank of India (RBI) on Wednesday announced a 25 basis point cut in the repo rate, bringing it down from 6.25% to 6%.
RBI Governor Sanjay Malhotra stated that the central bank’s Monetary Policy Committee (MPC) voted unanimously in favor of the rate cut during its April 7-9 meeting. This is the second rate cut this year, following February’s move when the key rate was reduced from 6.50% to 6.25%.
The repo rate—the interest charged by the RBI when lending to commercial banks—is a crucial tool for controlling liquidity and supporting economic growth. With the cut, loan EMIs are expected to come down, offering relief to both retail and business borrowers.
US Tariffs and Economic Pressure
The decision follows the recent imposition of 26% tariffs by the United States on Indian imports. Experts believe the move could shave off 20–40 basis points from India’s GDP growth for the fiscal year 2025–26, lowering it to around 6.1% from the earlier 6.7% forecast.
RBI Governor Malhotra acknowledged the growing global uncertainty. “The financial year begins on an anxious note for the global economy,” he said. “Higher tariffs may impact net exports. India is proactively engaging with the US administration on trade matters.”
He also noted that while it is difficult to quantify the full impact of global developments, the RBI is confident in its ability to manage domestic growth.
GDP and Inflation Outlook
Despite global headwinds, the RBI now expects India’s GDP to grow by 6.5% in the current fiscal year. Quarterly projections are set at:
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Q1: 6.5%
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Q2: 6.7%
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Q3: 6.6%
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Q4: 6.3%
This follows a strong 9.2% growth rate recorded in the previous year, showing a robust foundation for recovery.
Meanwhile, the Consumer Price Index (CPI) inflation forecast has been revised down to 4% from 4.2%. The quarterly inflation projections are:
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Q1: 3.6%
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Q2: 3.9%
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Q3: 3.8%
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Q4: 4.4%
“The risks are evenly balanced,” Malhotra said, suggesting a cautious yet optimistic stance on inflation control.
Sectoral Outlook Remains Positive
The Governor painted a hopeful picture for key sectors:
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Agriculture: Expected to perform well, supported by strong reservoir levels and good crop production.
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Manufacturing: Showing early signs of revival.
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Services: Remains resilient.
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Urban Consumption: Seeing improvement with a rise in discretionary spending.
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Banking and Corporate Balance Sheets: Described as “healthy,” indicating overall financial sector stability.
The move to cut interest rates reflects the RBI’s proactive approach to navigate through external shocks, support domestic growth, and maintain price stability.
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