India Holds Key Interest Rates Steady As Trade Tensions Escalate

(RTTNews) - The Reserve Bank of India left its key interest rates unchanged on Wednesday after an aggressive cut in June as the economy faces another threat from the US due to its Russian oil imports.

The RBI Monetary Policy Committee, led by Governor Sanjay Malhotra, unanimously decided to hold the policy repo rate at 5.50 percent.

The bank had reduced the rate by 50 basis points in June and 25 basis points each in February and April.

"The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path," the bank said in a statement. All members of the six-member panel decided to continue with the neutral stance. Policymakers observed that the uncertainties of tariffs are still evolving, and the monetary policy transmission is continuing. The impact of the 100 basis points rate cuts since February 2025 is still unfolding.

The governor said the inflation outlook for 2025-26 has become more benign than expected in June. The bank downgraded its inflation forecast for the current financial year to 3.1 percent from 3.7 percent projected in June.

At the same time, economic growth for 2025-26 was projected at 6.5 percent, unchanged from the previous outlook.

"The combination of softer inflation and emerging downside risks to growth suggests there is still room for further rate cuts - particularly if monetary policy transmission improves," ING economist Deepali Bhargava said.

With real policy rates still elevated relative to historical norms and inflation expected to average below the RBI's medium-term target of 4 percent for the year, the economist maintained the expectation of a 25 basis point rate cut in the fourth quarter.

U.S. President Donald Trump has imposed a tariff of 25 percent on imports from India, which is the highest in the region. Trump has threatened to substantially raise the 25 percent tariff on India due to its purchase of oil from Russia.