The Reserve Bank of India logo outside its headquarters in Mumbai on Feb. 7, 2025.
Indranil Mukherjee | Afp | Getty Images
India’s central bank cut its policy rate by 25 basis points to 5.25%, matching forecasts from economists polled by Reuters.
The monetary policy committee delivered a unanimous reduction, citing “weakness in some key economic indicators,” even as headline inflation has eased significantly and is expected to be revised lower in the first quarter of 2025, said RBI governor Sanjay Malhotra.
The economy expanded 8.2% from July to September, outpacing expectations, while inflation remains subdued.
RBI’s Malhotra, explaining the rationale for keeping rates unchanged at the last policy meeting in October, warned that although inflation moderated significantly in the first quarter, growth could still slow in the second half of the financial year due to global trade uncertainties.
Still, industrial activity in October fell to a 14-month low, and indicators such as HSBC’s manufacturing PMI fell to a nine-month low in November, suggesting an economic slowdown.
Exports to the U.S., one of India’s major trading partners, fell for a second straight month in October, sliding 8.5% from a year earlier to $6.3 billion. Overall outbound shipments in October also fell 11.8% to $34.38 billion.
Washington has imposed a 50% tariff on Indian goods since August. To offset the impact of the tariffs, New Delhi cut goods and services tax rates in September ahead of a month-long festive season to lift domestic demand.
GST tax collections showed a sharp improvement in October to 1.95 trillion rupees ($21.7 billion), up 4.6% from a year earlier, but the growth was muted in November with gross collection of 1.7 trillion rupees, a modest 0.7% increase.
The Indian rupee has weakened against the dollar in recent days, slipping past the important 90-rupee-per-dollar level on Wednesday before paring losses.
Despite a policy rate cut earlier this year, there has not been a “major pick up in bank lending,” said Sanjay Mathur, ANZ’s Chief Economist for India and Southeast Asia. He added that while there is also no clarity on the conclusion of a U.S.-India trade deal, the impact of tariffs is visible on the economy.