The Reserve Bank of India cut interest rates by 25 basis points as scheduled to boost the economy's resilience against tariff impacts.

The Reserve Bank of India has lowered the policy rate by 25 basis points to 6%, the lowest level since September 2022, amid growing concerns about the growth of the world's fifth-largest economy. This rate cut was in line with market expectations. At the same time, the United States imposed a 26% tariff on goods imported from India at midnight local time (9:31 am Indian time). The Reserve Bank of India stated in its monetary policy statement that the tariffs have increased uncertainty in regional economic prospects and have brought new resistance to global inflation. At the time of the rate cut by the Reserve Bank of India, inflation in India is slowing down, but the economy is also slowing down. The Reserve Bank of India explained that the rate cut was due to a "marked improvement" in inflation outlook and added that confidence in achieving the 4% inflation target in the next 12 months has strengthened. The Reserve Bank of India stated: "On the other hand, following a weak performance in the first half of the financial year 2024-2025 due to global environmental challenges, economic growth is still on a recovery path." Data shows that India's GDP growth rate in the fourth quarter of 2024 was 6.2%, lower than market expectations. For the fiscal year ending in March 2025, the Indian economy is expected to grow by 6.5%, a significant slowdown from the previous year's 9.2%. HSBC expects that tariffs will directly lead to a 0.5 percentage point decrease in India's economic growth rate for the fiscal year ending in March 2026, with factors such as slowing export volume and weakening foreign direct investment flows potentially having indirect and secondary effects. Sanjay Mathur, Chief Economist for Southeast Asia and India at ANZ Bank, stated that India's GDP growth "definitely" faces downside risks, and with the impact on the global system, a GDP growth rate below 6% is not impossible. Mathur also mentioned that India is facing heat waves, which will affect the country's agricultural production. Agriculture is a significant component of India's GDP, contributing 18% to its economy. Due to a decrease in vegetable prices, India's inflation rate in February was 3.61%, lower than market expectations and the lowest level since July 2024. The Reserve Bank of India expects the inflation rate for the fiscal year ending in March 2026 to be 4%. Additionally, HSBC estimates that due to the impact of falling food prices, the average inflation rate for the next six months will be around 3.5%. HSBC added: "Core inflation may also remain subdued, mainly due to the recent appreciation of the rupee, input deflation, softening oil prices, and slowing domestic growth in India."