The Indian Central Bank maintained its reference interest rate stable to 5.5% on Wednesday faced with the growing customs threats of the US President Donald Trump.
This move was in line with the expectations of the economist who surveyed Reuters, and came after the India’s reserve bank at his last meeting in June uttered an excessive decrease of 50 base points.
RBI Governor Sanjay Malhotra said in his statement of monetary policy that the decision is unanimous. He noted that, although global trade challenges remain present, geopolitical uncertainties “somewhat gave way.”
The Nifty Index 50 dropped by 0.18% after the decision, while Sensex fell slightly. The rupee strengthened slightly and traded at a price of 87.72 compared to the dollar.
The latest move of RBI comes at the time India is carried with growing tensions with the US around trade relations with Russia. On Monday, Trump criticized India due to the purchase of Russian oil and weapons, threatening higher tariffs and unspecified “punish”.
While domestic growth remains “resistant”, the Central Bank noticed that external demand prospects continue to “uncertain in the middle of the current tariff announcement and trade negotiations”.
“Uncertain problems arising from long-term geopolitical tensions, permanent global uncertainties and volatility in global financial markets are risks for growth prospects.”
During the last meeting of RBI, Malhotra said there was a limited space for the monetary policy to support growth due to the reduction of 50 base points in June. As such, the RBI will change its position with “accommodation” on “neutral”.
This means that the Committee on Monetary Policy, which is the key body to adopt RBI decisions, carefully assess “incoming data that develops to set off the future direction of monetary policy,” Malhotra said, reports SEEbiz.
Bank of America analysts in Note 28. July said that RBI “took the market to control the” early, aggressive reduction in interest rates. They expect the central bank to stop for now, and further political support will only be deployed if a larger displacement occurs in macroeconomic prospects.
However, BOFA analysts left open doors for possible reducing interest rates later this year – probably in the fourth quarter of 2025. – After GDP growth prospects becomes clearer.
