India central bank cuts interest rates as Trump tariffs kick in
MUMBAI: India's central bank cut interest rates in the world's fifth-largest economy on Wednesday as Donald Trump's tariffs kicked in and policymakers warned of 'challenging global economic conditions'.
The cut, the second this year, aims to boost a slowing economy grappling with the impact US President Donald Trump's sweeping tariffs.
The Reserve Bank of India (RBI) said the benchmark repo rate, the level at which it lends to commercial banks, would be reduced by 25 basis points to 6%.
The central bank's decision came on the same day that the Trump administration's reciprocal tariff of 26% for the world's most populous nation came into effect.
Easing inflation concerns over the last few months have allowed the RBI to focus on perking up the Indian economy, whose growth has slowed in the last few quarters.
Trump's protectionist trade policies will likely add to growth pressures and present a challenge for Indian policymakers.
While New Delhi is not a manufacturing powerhouse, experts believe that high US tariffs will hurt billions of dollars of Indian exports across different sectors, including gems, jewellery and seafood.
Uncertainties
Economists project that Trump's tariffs drive will impact India's GDP growth, with analysts at Goldman Sachs reducing their forecast for the current fiscal year from 6.3 to 6.1%.
The RBI's monetary policy committee (MPC) said in a statement that "recent trade tariff related measures" had "exacerbated uncertainties" and clouded the "economic outlook across regions".
"In such challenging global economic conditions, the benign inflation and moderate growth outlook demands that the MPC continues to support growth," the statement added.
India's central bank cut interest rates for the first time in nearly five years in February 2024, as it sought to boost an economy that has been weighed down by muted urban consumer sentiment, a sluggish manufacturing sector and lower government expenditure.
The Indian economy is projected to have grown at 6.5% in the last fiscal year, its slowest pace since the Covid-19 pandemic and down from 9.2% in 2023-24.
New Delhi has responded cautiously to Trump's chaotic trade policies so far.
The Department of Commerce last week said it was examining both "implications" and "opportunities" after rival manufacturing competitors were harder hit by Trump's hike in duties.
New Delhi and Washington are currently negotiating a bilateral trade agreement, the first tranche of which they hope to finalise by autumn this year.
By RSS/AFP
