India holds rates as expected but flags risks from US tariffs

Global trade challenges continue to linger but prospects for the Indian economy remain 'bright' says RBI Governor Sanjay Malhotra

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India’s central bank held key interest rates steady on Wednesday as expected, saying the economy remains steady, even though economists expect steep US tariffs on Indian exports and subdued inflation to open room for limited further easing.

India faces the imposition of a 25% tariff on its shipments to the US from Friday, and President Donald Trump has warned of “very substantial” additional levies because of New Delhi's oil imports from Russia.

The six-member rate-setting panel voted unanimously to hold the key repo rate at 5.50% and decided to continue with a “neutral” policy stance.

While headline inflation is much lower than expected, it is largely due to volatile food prices and is set to rise towards the end of the year, Malhotra said.

A large majority of economists, 44 of 57, had forecast a pause in a July 18-24 Reuters poll, following a surprise 50 basis point cut in June.

The central bank has cut the policy repo rate by 100 bps so far in 2025 as price pressures eased.

A majority of economists see room for limited further easing, but some say that low inflation and trade uncertainties could prompt another 50 bps of rate cuts.