India central bank cuts rates amidst US trade deal limbo

MUMBAI: India's central bank cut interest rates on Friday as low inflation provided room to help cushion the world's fastest-growing major economy against US President Donald Trump's tariff blitz.
The Reserve Bank of India (RBI) said the benchmark repo rate, the level at which it lends to commercial banks, would be reduced by five basis points to 5.25 per cent after a unanimous vote by its monetary policy committee.
Some analysts had expected the central bank to keep it steady, given that it has already cut rates by more than 100 basis points in three tranches this year and India's GDP growth hit a six-quarter high in the July-September period.
But a majority had argued that easing price pressures and mounting risks to India's economic outlook stemming from Trump's tariffs justify a reduction.
The world's fifth-largest economy is currently grappling with steep tariffs of 50 per cent on most goods, with exporters warning of cancelled orders and widespread job losses.
While Indian officials remain optimistic over finalising the first phase of a trade deal with the US by the end of this year, neither side has announced a breakthrough.
Experts project that prolonged tariffs could shave anywhere between 60 to 80 basis points off India's economic growth this fiscal year.
RBI Governor Sanjay Malhotra said its monetary policy committee also decided to purchase government securities of more than $111 million from the open market and a three-year dollar-rupee buy-sell swap of $5 billion this month amidst 'evolving liquidity conditions'.
Malhotra added that the central bank has decided to maintain 'a neutral stance', suggesting there was room for further rate cuts.
Indian policymakers have been faced with multiple challenges this year including a growth slowdown, a sinking rupee and slumping exports.
Prime Minister Narendra Modi has unveiled sweeping consumption tax cuts and pushed through labour law reforms after the country's economic growth hit a four-year-low in the fiscal year that ended March 31.
Easing inflation also allowed the RBI to cut rates for the first time in nearly five years in February and follow it up with two other reductions in April and June before holding them steady in the last two policy meetings. — AFP