The Reserve Bank of India (RBI) has cut its key lending rate the repo rate from 6.25% to 6%, marking the second reduction since February. This shift to an “accommodative” monetary policy stance signals the central bank’s readiness to further ease borrowing costs amid growing economic risks from global trade tension.
The RBI has revised India’s GDP growth projection for the current fiscal year down to 6.5%, from an earlier estimate of 6.7%. Governor Sanjay Malhotra warned that “trade frictions are coming true,” disrupting global commerce and posing challenges for India’s economy. With the U.S.-China trade war escalating and new U.S. tariffs on Indian exports (up to 27%), economists fear deeper economic repercussions.
Analysts now predict more aggressive rate cuts potentially up to 1% as inflation remains subdued and growth weakens. ICICI Bank and other brokerages suggest the RBI will continue easing monetary policy to counter slowing demand. HSBC estimates that India’s GDP could shrink by 0.5% this year due to declining exports and reduced foreign investment inflow
The Indian government’s ability to stimulate the economy is constrained by sluggish tax revenues and slower public spending. While New Delhi is negotiating a trade deal with the U.S., experts caution that even an agreement may not shield India from a global downturn. Crisil Ratings notes that the final impact of tariffs depends on their duration and how other nations retaliate.
With JPMorgan placing the odds of a global recession at 60% and Moody’s raising its probability to 35%, India’s export-dependent sectors face significant risks. Though India remains the fastest-growing major economy, its growth has sharply decelerated from 9.2% in FY 2023-24.
As trade wars intensify, India’s policymakers must balance monetary easing with structural reforms to sustain growth in an increasingly volatile global economy.
