India’s central bank cut interest rates more than expected on Friday, citing muted inflation and a need to kickstart economic growth amid concerns about the impact of US tariffs.
The Reserve Bank of India (RBI) lowered the benchmark repo rate, the level at which it lends to commercial banks, by 50 basis points to 5.5 percent.
A majority of analysts had expected 25-basis-point reduction.
The cut was its third in a row and comes a week after government data showed India’s economy expanded at its slowest pace for four years in the fiscal year that ended in March.
And while the January-March quarter showed signs of a rebound, with forecast-topping 7.4 percent year-on-year growth, analysts said US President Donald Trump’s sweeping tariffs posed risks to the outlook.
Easing price concerns have also allowed the RBI to concentrate on growth, with retail inflation dropping to a near six-year-low of 3.16 percent in April.
Bank governor Sanjay Malhotra said the monetary policy committee felt it was “imperative” to continue to stimulate “domestic consumption and investment” through policy levers to boost “growth momentum”.
The RBI cut rates for the first time in nearly five years in February and followed up with another reduction in April.
The Indian government has forecast above-average monsoon rains, which observers say should help growth, as higher agricultural output will aid the rural economy and keep vegetable prices stable.
But Trump’s protectionist policies could add to growth pressures.
While New Delhi is not a manufacturing powerhouse, experts believe that US tariffs will hurt billions of dollars of Indian exports across different sectors including electronics, gems and jewellery and seafood.
India is hammering out the first tranche of a trade deal with Washington and negotiators have made several trips over the past three months.
Local media reports say that while the White House is pushing for India to drop levies on a range of products, including agricultural produce and automobiles, New Delhi is asking for greater access for labour-intensive exports such as textiles and footwear.
US Commerce Secretary Howard Lutnick said this week that a trade deal between the two countries could be expected in the “not too distant future”.
