Indian central bank reduces rates as international trade conflict escalates

(MENAFN) India's central bank has reduced its key interest rate for the second time this year, cutting the repo rate by 0.25 basis points to 6.00%. This move is aimed at reducing borrowing costs for both businesses and consumers, thereby stimulating economic activity. The repo rate, which is the rate at which the Reserve Bank of India (RBI) lends to commercial banks for short-term needs, is a crucial tool for managing liquidity and controlling inflation.

This rate cut comes in the wake of increasing global uncertainties, particularly due to the escalating trade war. The RBI noted that the new tariffs imposed by the US on India have added to these uncertainties, further complicating the global economic outlook. Governor Sanjay Malhotra stated that these trade tensions would negatively affect both global growth and India's exports.

In response, the RBI has shifted from a "neutral" to an "accommodative" stance, signaling a more supportive monetary policy to encourage growth and stability. Malhotra also expressed concerns about how these global trade disruptions could dampen domestic growth, hinting that further rate cuts might be on the horizon.

Despite these challenges, India is in a relatively better position compared to other major economies, thanks to its smaller trade surplus with the US and lower tariff impacts. The country’s economy has been slowing down, with the GDP growth rate falling to 6.2% in the last quarter of 2024, below expectations, and a forecasted growth of 6.5% for the 2024-2025 financial year, down from the previous year’s 9.2%.

The RBI also cited a significant improvement in the inflation outlook, with a target of achieving 4% inflation within the next year. Despite the challenges posed by global trade dynamics, Indian Finance Minister Nirmala Sitharaman expressed confidence in India’s resilience, noting that domestic demand would continue to drive growth.

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