RBI Shifts Stance To Accommodative As Tariffs Loom

(RTTNews) - The Reserve Bank of India cut its key policy rates for the second straight meeting and also shifted its monetary policy stance to accommodative as trade tariffs pose risks to the outlook for both inflation and growth.

At the first policy meeting of the financial year, the Monetary Policy Committee, led by RBI Governor Sanjay Malhotra, unanimously decided to cut the policy repo rate by 25 basis points to 6.00 percent, with immediate effect.

The Indian central bank had previously lowered its policy rate by 25 basis points in February, which was the first reduction since May 2020.

The MPC also decided to change the stance from neutral to accommodative. Policymakers observed that rapidly evolving situation requires continuous monitoring and assessment of the economic outlook.

Governor Malhotra said going forward, in the absence of any shocks, the MPC is considering only two options - status quo or a rate cut.

Policymakers observed that the recent trade tariff related measures exacerbated uncertainties clouding the economic outlook across regions and pose new headwinds for global growth and inflation.

The U.S. administration's 26 percent tariffs on imports from India take effect on Wednesday. Although pharmaceuticals were exempted from reciprocal tariffs earlier, President Donald Trump said a major tariff on pharma imports is set to be announced soon.

The current challenging global economic conditions, the benign inflation outlook and moderate growth, demand that the committee continues to support growth, Malhotra said.

Citing the impact of global trade and policy uncertainties, the bank downgraded economic growth outlook for the financial year 2025-26 to 6.5 percent from 6.7 percent. The MPC observed a decisive improvement in the inflation outlook and expressed greater confidence of a durable alignment of headline inflation with the target of 4 percent over a 12-month horizon.

Inflation projection for the current financial year was lowered to 4.0 percent from 4.2 percent.

With uncertainty over trade tariffs of the U.S. administration set to rumble on and inflation looking contained, further rate cuts are likely, Capital Economics economist Shilan Shah said.

The shift in the monetary policy stance supports the view that interest rates will fall further than most expect, Shah noted. The repo rate will drop to 5.50 percent this year, the economist added.