ADVERTISEMENT
The Reserve Bank of India’s monetary policy committee (MPC) today unanimously slashed the repo rate by 25 basis points to 6%. The MPC decided to change the stance from 'neutral' to 'accommodative'.
The second consecutive rate cut comes amid a challenging global environment.
The global economic outlook is fast changing and the US tariffs have posed new headwinds for growth, RBI governor Sanjay Malhotra said in his address. "Merchandise exports will be weighed down by global uncertainties. Headwinds from global trade disruptions continue to pose downward risks," he said.
This is the second monetary policy statement of Malhotra, who took over from Shaktikanta Das in December last year.
The rate cut comes on the day when the US imposes 26% tariffs on Indian goods exports from April 9, 2025.
The monetary policy committee forecasts India’s gross domestic product (GDP) to grow at 6.5% in the financial year 2025-26. This is 20 basis points lower than MPC's earlier projection of 6.7%.
"Uncertainty in itself dampens growth by affecting investment and spending decisions of both businesses and households. The dent on global growth due to trade friction will also hit domestic growth. Higher tariffs shall have a negative impact on net exports," said Malhotra, adding that tariffs on India are lower compared to other countries.
"Overall, while global trade and policy uncertainties shall impede growth, its impact on domestic inflation, while requiring us to be vigilant, is not expected to be of high concern," the RBI governor added.
On inflation, the RBI governor said that a sharper-than-expected decline in food inflation and the fall in crude oil prices augurs well for inflation. The MPC projects Consumer Price Index inflation at 4% for FY26.
"In FY26, the prospects of the agriculture sector remain bright on the top of healthy reservoir levels and robust crop production. Manufacturing activity is showing signs of revival with business expectations remaining robust while services sector activity continues to be resilient. Bright prospects of the agriculture sector bode well for rural demand while urban consumption is gradually picking up with an uptick in discretionary spending," explained Malhotra.
Slowdown in global growth could soften crude oil and commodity prices, putting downwards pressure on inflation, he said. Crude oil prices have fallen to their lowest in three years.
Agricultural performance continues to be strong due to favourable reservoir levels and promising rabi crop expectations, Malhotra said.
The RBI governor, however, cautioned that uncertainties may lead to a possible currency pressure.
Fortune India is now on WhatsApp! Get the latest updates from the world of business and economy delivered straight to your phone. Subscribe now.