India's Central Bank Cuts Rates as Economy Navigates Trump Trade Pressures
The Reserve Bank of India has delivered a decisive 25 basis point rate cut, bringing the repo rate to 5.25% as the world's fifth-largest economy demonstrates remarkable resilience in the face of mounting external pressures.
This latest monetary easing, unanimously approved by the RBI's six-member committee, reflects India's commitment to supporting domestic growth while navigating the challenging landscape of punitive US tariffs imposed under Donald Trump's administration.
A Goldilocks Economy Under Pressure
RBI Governor Sanjay Malhotra described India's current economic conditions as a "rare goldilocks" period, characterised by strong growth alongside rapid disinflation. The central bank has now cut rates by 125 basis points since February 2025, marking the most aggressive easing cycle since 2019.
"Policy space exists to support growth," Malhotra emphasised, highlighting how inflation has fallen below the central bank's lower tolerance threshold while economic expansion remains robust.
The economy expanded at an impressive 8.2% in the July-September quarter, prompting the RBI to raise its annual GDP forecast to 7.3% from 6.8%. Meanwhile, inflation projections were revised down to 2% from 2.6%.
Liquidity Boost and Future Outlook
Beyond rate cuts, the RBI announced substantial liquidity measures, including 1 trillion rupees ($11.14 billion) in open market bond purchases this month and $5 billion in forex swaps. These measures aim to accelerate the transmission of lower rates throughout the banking system.
Economists remain optimistic about further easing. Garima Kapoor from Mumbai-based Elara Securities noted: "There are no signs of overheating in the economy. We believe there would be scope for another 25 basis points cut this cycle."
External Challenges and Currency Resilience
Despite facing potential tariffs of up to 50% on exports ranging from textiles to chemicals, India's external sector remains "resilient," according to Malhotra. The nation's foreign exchange reserves of $686.2 billion provide robust import cover exceeding 11 months.
While the rupee has touched record lows amid concerns over dollar flows and a widening trade deficit, the central bank has indicated it will only intervene to curb speculative activity, allowing market forces greater influence over currency valuation.
The monetary policy stance reflects India's broader economic strategy of maintaining growth momentum while building resilience against external shocks, a approach that resonates with progressive economic thinking focused on sustainable development and social welfare.