Quick overview

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India’s central bank significantly reduced its benchmark policy rate, which had been at its lowest since August 2022, from 6% to 5%. Additionally, this is the third consecutive rate cut since February and falls short of the median forecasts of 5.75% in a Reuters poll.

 

The decision was made because inflation had considerably decreased and growth had been “lower than our aspirations amidst a challenging global environment and heightened uncertainty,” RBI Governor Sanjay Malhotra stated in a livestream.

The economy grew 7% year over year following a better-than-expected GDP growth figure in its fiscal fourth quarter, compared to the 6% predicted by Reuters-polling economists. The decision was made.
The decision was made in response to a better-than-expected GDP growth figure in its fiscal fourth quarter, which showed the economy growing 7% year over year as opposed to the 6% predicted by Reuters-polling economists. In contrast to the 9.2% recorded in the previous fiscal year, which concluded in March, the central bank maintained its full-year GDP estimate at 6.5%, indicating a significant drop.

“There is strength, stability, and opportunity in the Indian economy,” Malhotra stated.

The RBI raised concerns amid the threat of U.S. tariffs. The decision was made when India’s inflation rate fell, giving the RBI flexibility to lower interest rates.

The headline inflation rate for April was 3.16%, the lowest since July 2019. Malhotra warned that inflation might fall short of the target after the RBI lowered its previous inflation outlook from 4% to 3% for the current fiscal year.