New Delhi – The Reserve Bank of India (RBI) on Friday lowered its benchmark interest rate for the first time in six months, signaling confidence in the country’s economic resilience despite recent global trade tensions. Speaking after the monetary policy announcement, RBI Governor Sanjay Malhotra said that the massive tariffs imposed by the United States on Indian goods have had “minimal impact” on the economy.

The six-member Monetary Policy Committee (MPC), chaired by Governor Malhotra, voted unanimously to cut the repurchase, or repo, rate by 25 basis points to 5.25 per cent. This marks the fourth reduction in the repo rate since February 2025, following cuts of 25 basis points each in February and April, and a larger 50-basis-point reduction in June.

Repo Rate and Its Implications

The repo rate is the interest rate at which commercial banks borrow from the RBI. A lower repo rate generally translates into lower interest rates on loans for consumers and businesses, thereby boosting liquidity in the economy. More accessible credit encourages investment and consumption, potentially driving higher economic growth.

Governor Malhotra described the current macroeconomic conditions as a “rare goldilocks period,” with inflation at a benign 2.2 per cent and growth at 8.0 per cent during the first half of the fiscal year (April–September 2025-26). Reflecting this optimism, the RBI revised its forecasts: inflation for the fiscal year has been lowered to 2 per cent from 2.6 per cent, while GDP growth is now projected at 7.3 per cent, up from the earlier estimate of 6.8 per cent.

Impact of US Tariffs

The Indian economy has been navigating a challenging external environment in recent weeks, particularly after US President Donald Trump imposed a 50 per cent tariff on Indian goods. Half of this tariff is interpreted as a “penalty” on India for continuing to buy oil from Russia amid the ongoing conflict in Ukraine.

Despite these measures, Governor Malhotra indicated that the tariffs have had limited effect on India’s overall economic performance. “Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience and is poised to register high growth,” he said.

Rupee Depreciation and Exports

The RBI’s move to cut the repo rate also comes amid concerns over the depreciation of the Indian rupee, which breached the 90-per-dollar mark this week, marking a nearly 5 per cent decline against the US currency for the year—the worst performance in Asia.

Indian exports, particularly to the US, have faced a sharp downturn following the imposition of tariffs. However, India has maintained that its trade and foreign policy decisions are sovereign. The ongoing state visit of Russian President Vladimir Putin, including summit talks with Prime Minister Narendra Modi, underscores India’s position on maintaining strategic independence in its international relations.

Policy Outlook and Economic Resilience

The RBI’s interest rate cut reflects a balance between encouraging domestic growth and managing inflation. By injecting more liquidity into the economy, the central bank aims to support consumer spending, investment, and overall economic activity, even as external challenges persist.

Analysts suggest that the central bank’s confidence is rooted in strong domestic demand, stable inflation, and a resilient financial system. The revised GDP growth estimate of 7.3 per cent signals that India’s economy is on track to outperform many other major economies in the current fiscal year.

Governor Malhotra’s remarks highlight India’s capacity to weather external shocks while prioritizing domestic economic priorities. The decision to cut the repo rate, despite rupee depreciation and the US tariff threat, indicates a focus on sustaining growth and reinforcing investor confidence in the Indian economy.

Looking Ahead

With global trade tensions and currency fluctuations likely to continue, the RBI will maintain a vigilant stance to ensure macroeconomic stability. At the same time, lower borrowing costs are expected to spur consumption and investment, helping the economy achieve the central bank’s growth projections.

As India navigates these complex dynamics, the RBI’s latest policy underscores a dual message: confidence in domestic economic strength and a measured response to external pressures. In this environment, businesses and consumers can expect easier access to credit, while policymakers continue to balance growth, inflation, and currency stability.

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