The Reserve Bank of India has cut its key interest rate by 25 basis points to 6 per cent. Announcing the decision, RBI Governor Sanjay Malhotra said that the central bank's Monetary Policy Committee voted unanimously to reduce the repo rate to 6 per cent after a detailed assessment of the evolving of macroeconomic and financial conditions. This is the second straight rate cut by the RBI which had reduced the repo rate for the first time in five years in February.
RBI Cuts Growth Forecast
The RBI has also revised India's GDP growth estimate for the current fiscal year to 6.5 per cent, down from its previous forecast of 6.7 per cent. Announcing the revised estimate, RBI Governor Sanjay Malhotra highlighted that India’s merchandise exports will be affected by global uncertainties. This revision comes at a time when the global economy is facing uncertainties due to the reciprocal tariff regime announced by the United States.
The US Reciprocal Tariff Concerns
Sharing the details on tariff concerns, RBI Governor stated that India is engaging vigorously and proactively with the US administration on a foreign trade agreement. He made the statement while highlighting concerns about the impact of the 26 per cent reciprocal tariff imposed by the United States, which came into effect on Wednesday.
The RBI Governor said, “First and foremost, uncertainty in itself dampens growth by affecting investment and spending decisions, both of businesses and households. Second, the dent in global growth due to trade frictions will also impede domestic growth. Third, higher tariffs shall have a negative impact on net exports. The impact of relative tariffs – our relative tariffs vis-à-vis some of the other countries – is quite low. Then there is the unknown of the elasticities of our export and import demand and the policy measures adopted by us.”
