Amid escalating global economic uncertainties and the recent imposition of U.S. tariffs, the Reserve Bank of India (RBI) has taken decisive monetary policy action to cushion the domestic economy. On April 12, 2025, the central bank announced a 25 basis point cut in the repo rate, bringing it down to 6.00%, marking its second consecutive rate cut this year.
This move underscores the RBI’s concerns about India’s slowing economic momentum, exacerbated by rising protectionist measures and global trade tensions. The U.S. administration’s recent wave of tariffs—targeting a range of imports from developing economies including India—has sent ripples through global markets, raising concerns about a broader economic slowdown.
Growth Outlook Downgraded
Reflecting these emerging challenges, the RBI has revised its GDP growth forecast for the fiscal year 2025-26 to 6.5%, down from its earlier projection of 6.7%. The central bank noted that while domestic consumption remains relatively resilient, external factors such as reduced export demand, disrupted supply chains, and investor caution are expected to weigh on overall economic activity.
“Global conditions have become increasingly uncertain,” the RBI said in its policy statement. “Rising trade protectionism and volatile financial markets necessitate a more accommodative stance to support domestic growth and safeguard financial stability.”
Inflation Forecast Eases
In a somewhat encouraging sign, the RBI also revised its inflation outlook downward. It now expects consumer price inflation to average 4.0% in FY26, compared to its previous estimate of 4.2%. This moderation is attributed to subdued consumer demand, stable commodity prices, and adequate food supply projections.
While inflation remains within the central bank’s comfort zone of 4% (+/-2%), the RBI cautioned that risks from volatile oil prices and weather-related disruptions could still influence future price trends.
Monetary Policy Stance and Future Outlook
The Monetary Policy Committee (MPC) voted 5:1 in favor of the rate cut and retained an "accommodative" stance, indicating that further easing is possible if economic conditions warrant it. The RBI emphasized the need to support growth without compromising financial discipline, suggesting a delicate balancing act in the coming quarters.
Economists broadly welcomed the move, citing it as a proactive step in light of the uncertain external environment. “The rate cut, along with the RBI’s dovish tone, is aimed at bolstering confidence and supporting investment,” said an economist at a leading financial firm. “However, the transmission of rate cuts to borrowers will be key.”
Conclusion
As India navigates an increasingly complex global economic landscape, the RBI’s latest policy decision reflects a strategic pivot to stimulate growth while maintaining macroeconomic stability. With trade tensions flaring and global demand softening, the central bank’s focus on flexibility and preparedness will be vital in steering the economy through potential turbulence in FY26.