Staying the course

RBI has rightly sought to boost the sluggish economy in the face of fresh US tariffs

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The Monetary Policy Committee's (MPC) decision to cut the repo rate by 25 basis points (bps) to 6%, and to alter the stance to "accommodative" from neutral, were just what the doctor ordered at a time when the Indian economy is in danger of being badly hurt by the global tariff war. Although the Reserve Bank of India (RBI) has trimmed its gross domestic product (GDP) growth outlook for 2025-26 by 20 bps to 6.5%, this looks a tall ask against the backdrop of unprecedented uncertainty in global trade and other policies.

RBI Governor Sanjay Malhotra has highlighted how the higher import tariffs imposed by the US — 26% for India — have exacerbated economic uncertainty and how fresh headwinds could put growth and inflation projections in jeopardy. By one estimate, the direct hit to the GDP from the 26% tariff is 50 bps; the spillover and second-order effects, economists believe, can be meaningful.