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India’s central bank wants to cut key interest rates by half points, cut the amounts banks have to store, promote loans and support the economy as ease of inflation.
The Reserve Bank of India’s interest rate cuts on Friday were deeper than expected, cutting the benchmark repo rate to 5.5%. The economists’ consensus forecast was a 0.25% reduction.
The central bank reduced its benchmark rate scale by 1% this year at three consecutive meetings.
Governor Sanjay Malhotra said the central bank is a “front load” rate reduction to 3% by 100 basis points to reduce lenders’ cash reserves.
The move came as RBI reduced its annual inflation forecast to 3.7% from 4% until March 2026.
“It will be even more important to focus on domestic growth amidst sustained price stability as the global environment remains uncertain,” Malhotra said, adding that RBI has also changed from “accommodation” to “neutral.”
“So today’s monetary policy action can be seen as a step towards driving growth on a higher ambitious trajectory.”
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Central banks around the world are wrestling with the chaos caused by US President Donald Trump’s tariff threat. The European Central Bank on Thursday showed that it was approaching the end of its rate-cut cycle, in response to its uncertainty.
Trump plans to impose a 26% tariff on imports from India if the trade contract is not ready by July.
India’s economy focuses on the country compared to its more export-dependent Asian neighbours, but in a meeting with the US, New Delhi has severely reduced tariffs on the commodity strip, reported the Financial Times.
As food prices softened, India’s cooling inflation gave the RBI more range to strengthen its economy. The consumer price index in April rose at the slowest rate in nearly six years, at 3.2% year-on-year.
Still, the dramatic rate “earned almost every Indian observer, including ourselves, including ourselves,” says Miguel Changko, chief Asian economist in Pantheon Macroeconomics, who hopes to adopt a “waiting approach” at their next meeting in August before cutting further later this year.
Interest rate cuts on Friday showed a recovery in the Indian economy following official data last week. GDP rose 7.4% year-on-year in the three months ended March, from 6.4% in the last quarter.
However, this reading revealed a relatively economic slowdown during the Indian fiscal year ending March.
Annual GDP grew at a rate of 6.5% compared to 9.2% in the previous year, following a widespread slowdown and lower consumption across Indian companies.
India has registered the fastest economy in major countries, but many experts believe that growth of at least 8% will be required to achieve Prime Minister Narendra Modi’s target for positioning of developed countries by 2047 after independence.
Since the slowdown was revealed last year, RBI has started a cycle of rate reductions and liquidity mitigation measures under Malhotra. Malhotra was chosen by the Modi government in December after two tenures of Hawkish Shaktikantadas.
