Trump’s tariffs exacerbate uncertainties! Why RBI cut repo rate by 25 basis points to support GDP growth

RBI MPC meeting

: The Reserve Bank of India (RBI) governor

Sanjay Malhotra

announced that the

Monetary Policy Committee

(MPC) has unanimously decided to cut the key policy repo rate by 25 basis points to 6%. He also said that the

GDP growth outlook

for FY 2025-26 has been cut slightly to 6.5% from 6.7% earlier. The outlook for

CPI inflation

appears to be benign at 4% for the current financial year.
Moreover, the MPC also decided to change the stance from neutral to accommodative. RBI governor Sanjay Malhotra explained that in the context of India, an ‘accommodative’ policy means that the MPC will in future monetary policy meetings either maintain status quo or cut repo rate further.
The Donald Trump administration has announced a 26% reciprocal tariff on Indian goods, and while other major economies have been hit with higher rates, a trade war may mean a bigger global economic slowdown and even recession. It is against this backdrop that the RBI’s monetary policy assumes significance.
Also Check | RBI MPC Meeting 2025 Live Updates

So why did the RBi governor-led MPC unanimously decide to cut the repo rate? The rationale for the policy lies in risks to India’s GDP growth.

“While the risks are evenly balanced around the baseline projections of growth, uncertainties remain high in the wake of the recent spurt in global volatility. In such challenging global economic conditions, the benign inflation and moderate growth outlook demands that the MPC continues to support growth,” said RBI in its statement.

The RBI governor cautioned that the global economic outlook is fast changing. The recent trade tariff related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation, he said.
Also Check | Explained: How unfair are Donald Trump’s tariffs, what is India’s relative advantage, and what should it do?
Merchandise exports would be weighed down by the evolving global economic landscape which appears to be uncertain at the current juncture, while services exports are expected to sustain the resilience, he added.
“The domestic growth-inflation trajectory demands monetary policy to be growth supportive, while being watchful on the inflation front. We are aiming for a non-inflationary growth that is built on the foundations of an improved demand and supply response and sustained macroeconomic balance. As before, we shall remain agile and decisive in our response and put in place policies that are clear, consistent, credible and in the best interest of the economy,” he concluded.