The Reserve Bank of India left its benchmark interest rate unchanged and maintained a neutral stance on Wednesday, citing increased caution in the face of tariff-related headwinds for the Indian economy.
The RBI left its benchmark rate at 5.5% as widely expected, after cutting the rate by a cumulative 1% so far in 2025.
The central bank noted that while the Indian economy was proving to be resilient amid cooling inflation, its export sectors faced growing headwinds from steep U.S. trade tariffs.
The RBI trimmed its consumer inflation forecasts for the current quarter and year, and noted that price pressures were likely to be “benign” in the coming months.
RBI Governor Sanjay Malhotra said in a post-meeting livestream that “trade-related uncertainties” were unfolding for the Indian economy, and that the outlook for growth was deteriorating.
He said that the RBI will wait for more clarity on the tariff scenario before it makes its next move.
“Ongoing tariff and trade uncertainties will impact overseas demand,” Malhotra said, adding that they present downside pressure for the economy. But the RBI governor added that recent goods and services tax (GST) cuts by the Narendra Modi government were likely to help soothe trade-related pressures.
Malhotra slightly hiked the RBI’s fiscal 2026 gross domestic product outlook to 6.8%, up from prior forecasts of 6.5%.
Malhotra said that the recent GST cuts, along with slowing food prices, presented a softer outlook for Indian inflation. He cut the RBI’s outlook for consumer price index inflation in fiscal 2026 to 2.7% from 3.1%.
India’s stellar economic growth story hit a snag this year after U.S. President Donald Trump slapped the country with 50% trade tariffs over its continued buying of Russian oil.
While the economy still grew an outsized 7.8% in the June quarter, its pace of growth– which is among the fastest in the world– is expected to moderate in the coming quarters, likely eliciting more monetary easing from the RBI.
