Indian central bank downsizes rates as worldwide trade conflict surges

(MENAFN) India’s central bank has reduced its key interest rate by 0.25 percentage points, marking the second cut this year. The new repo rate is now 6.00%, aiming to lower borrowing costs for consumers and businesses, and to stimulate economic activity. The decision comes at a time of rising global trade tensions, particularly as the US imposes tariffs on India, contributing to uncertainties in the global economy.

The repo rate is the rate at which the Reserve Bank of India (RBI) lends to commercial banks, and adjustments to this rate play a significant role in managing liquidity and inflation. The RBI’s move comes in response to increased tariffs, which are impacting global growth and inflation, and challenging the economic outlook.

Governor Sanjay Malhotra emphasized that the global trade friction is likely to impede domestic growth and hurt exports. The RBI shifted its stance from “neutral” to “accommodative,” suggesting it will continue to adopt policies to support economic growth. Malhotra hinted that additional rate cuts could be considered later this year.

Despite challenges, including a slowdown in India’s economic growth (GDP growth was 6.2% in the fourth quarter of 2024), the RBI remains optimistic that inflation will meet its 4% target within the next year. Finance Minister Nirmala Sitharaman, speaking from London, expressed confidence in India’s strong domestic demand and resilience, despite the changing global trade environment.

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