RBI holds interest rates steady, signals caution over tariff risks
The Reserve Bank of India (RBI) left its benchmark interest rate unchanged at 5.5% on Wednesday, keeping a neutral stance as trade tariffs create new risks for the economy. The move was widely expected after the RBI had already cut rates by a total of 1% in 2025.
The central bank highlighted that India’s economy remains resilient with cooling inflation. However, export sectors are facing growing challenges from steep U.S. trade tariffs.
Inflation outlook revised lower
The RBI cut its consumer inflation forecasts for the current quarter and the full fiscal year. It said price pressures were likely to remain “benign” in the coming months.
Governor Sanjay Malhotra said during a post-meeting livestream that “trade-related uncertainties” were weighing on the outlook. He added that the RBI would wait for more clarity on tariffs before making its next policy move.
Malhotra warned that ongoing tariff disputes could weaken overseas demand and present downside risks. However, he said recent goods and services tax (GST) cuts announced by the Modi government should help offset some of the pressure.
Growth forecast lifted despite trade headwinds
The RBI slightly raised its fiscal 2026 GDP forecast to 6.8%, compared to an earlier estimate of 6.5%. Malhotra also lowered the inflation outlook for fiscal 2026 to 2.7%, down from 3.1%, citing softer food prices and the GST cuts.
India’s strong growth story has recently slowed after U.S. President Donald Trump imposed 50% tariffs on Indian exports in response to the country’s continued purchases of Russian oil.
Although India posted a robust 7.8% expansion in the June quarter, the pace of growth is expected to moderate in the coming quarters. Analysts believe this could lead the RBI to consider further monetary easing.
