INDIA – In a move to counter slowing growth and global trade pressures, the Reserve Bank of India (RBI) slashed its benchmark interest rate by 50 basis points to 5.5% on June 6, double the cut most analysts had anticipated. The decision reflects concerns over the economic impact of United States tariffs and aims to stimulate domestic demand amid muted inflation.
This marks the third consecutive rate cut by India’s central bank, following subdued GDP figures for the fiscal year ending in March. Although the January–March quarter recorded a stronger-than-expected 7.4% year-on-year growth, economists remain cautious. U.S. President Donald Trump’s tariff measures continue to cloud India’s trade outlook, especially as export-dependent sectors brace for potential losses.
Retail inflation has eased significantly, falling to 3.16% in April, its lowest in nearly six years, allowing the RBI to prioritize growth. “Our growth is still below expectations in a globally challenging scenario,” said RBI Governor Sanjay Malhotra. “Given the evolving dynamics between inflation and growth, it’s essential to accelerate rate reductions to support recovery.”
The monetary policy committee also announced a shift from an “accommodative” to a “neutral” stance, signaling a more cautious approach to future rate cuts.
In addition to the rate reduction, the RBI lowered the cash reserve ratio, the portion of deposits banks must hold with the central bank, by 100 basis points to 3%, injecting more liquidity into the banking system.
This aggressive monetary easing began in February, the first such move in nearly five years, and was followed by another cut in April. The Indian government is hopeful that above-average monsoon rainfall will help boost agricultural output, supporting the rural economy and keeping food prices stable.
However, uncertainties remain. Despite India’s limited exposure as a global manufacturing hub, U.S. tariffs could still hit vital export sectors, including gems, electronics, and seafood. Negotiators from both countries have held multiple rounds of talks in recent months to finalize a trade deal. While Washington seeks lower tariffs on farm products and automobiles, New Delhi is pushing for improved access for labor-intensive exports such as textiles and footwear.
U.S. Commerce Secretary Howard Lutnick said this week that a bilateral trade agreement could be reached “in the not too distant future.”