RBI Maintains Interest Rates Amid Global Trade Uncertainty

The Reserve Bank of India (RBI) has decided to keep its policy interest rate unchanged, reflecting concerns over global trade policies and potential tariff hikes by the United States under President Donald Trump. The US has imposed a 25% duty on Indian goods, effective Thursday, and has threatened further increases due to India’s ongoing purchase of Russian oil. This decision comes as the RBI’s six-member rate-setting panel, led by Governor Sanjay Malhotra, unanimously voted to maintain the repurchase rate at 5.5%, adopting a ‘neutral’ stance.

Uncertain Impact on India’s Growth

Governor Malhotra refrained from directly addressing the US tariffs but acknowledged the difficulty in predicting their impact on India’s economic growth. He highlighted the uncertainties in external demand due to ongoing tariff announcements and trade negotiations. The geopolitical tensions and volatility in global financial markets pose significant risks to India’s growth outlook.

Revised Growth and Inflation Forecasts

In light of these uncertainties, the RBI has revised its growth forecast from 6.7% to 6.5%. Despite these challenges, Malhotra emphasized that India’s domestic economy remains robust, supported by strong fundamentals and comfortable buffers. The RBI also adjusted its inflation forecast for the current fiscal year from 3.7% to 3.1%, although a rise in headline inflation is anticipated towards the year’s end.

Policy Frameworks for Economic Stability

Malhotra stressed the importance of strong policy frameworks across various domains to support India’s journey in the global economy. He assured that the RBI would continue to provide a facilitative monetary policy, adapting to incoming data and evolving growth-inflation dynamics. The central bank aims to maintain clear and credible communication while supporting economic growth without compromising price stability.