As Trump tariffs take effect, RBI cuts rates, adopts ‘accommodative’ stance

The Reserve Bank of India (RBI) on Wednesday slashed interest rates for a second consecutive time, while shifting its monetary policy stance to “accommodative” from “neutral,” signaling an intent to further cut rates.

The RBI’s six-member monetary policy committee, headed by RBI governor Sanjay Malhotra, unanimously voted to reduce the policy repo rate by 25 basis points to 6% in an effort to stimulate a sluggish economy facing challenges from US tariffs. One basis point is one-hundredth of a percentage point.

Most economists had predicted the move.

“Growth is improving but remains lower than what we aspire for,” Malhotra said in Mumbai, adding that the inflation outlook is benign.

“The change in stance means MPC intends only status quo or rate cut,” Malhotra said, adding that India’s economy has made steady “progress” but RBI stays “vigilant.”

Bonds pared losses as RBI changed its policy stance, while stocks traded lower.

The 30-stock benchmark the BSE Sensex index was down 382 points, or 0.5%, from the previous day’s close at 11am local time.

The benchmark 10-year bond yield was marginally lower at 6.50% after the announcement, against 6.51% before it, while the rupee also slipped marginally to 86.61 from 86.58 before the decision.

RBI had started reducing rates with a quarter-point cut in February, its first cut since May 2020.

The Reserve Bank’s latest decision came as US President Donald Trump’s aggressive reciprocal tariffs kicked in.

Indian stocks have declined 4% since Trump’s tariff announcements, with some analysts estimating that India’s growth could be hit by 20-40 bps this fiscal year.

The Indian economy grew 6.5% in the past fiscal year, its weakest pace since the covid pandemic hit.

RBI estimates growth at 6.5%, slightly lower than its earlier projection of 6.7%, and inflation at 4%, against 4.2% earlier.

The US’s tariff measures have worsened uncertainties but quantifying the impact of this on growth is difficult, Malhotra said in his statement.

Since taking over as RBI governor in December, Malhotra has followed a more growth-friendly approach to policy than his predecessor, Shaktikanta Das.

Besides cutting rates in his debut policy meeting in February, Malhotra has injected about $80 billion into the banking system in the past two months.