India central bank cuts rates amid US trade deal limbo

FE Team | Published: December 05, 2025 22:44:21

MUMBAI, India, Dec 5 (AFP): India's central bank cut interest rates on Friday and signalled more could be on the way as low inflation provided room to help cushion the world's fifth-largest economy against US President Donald Trump's tariff blitz.
The decision also comes after the rupee hit a record low against the dollar this week -- having dropped around five percent in 2025 -- owing to ongoing worries about the lack of a trade deal with Washington and impact of the levies on the country's goods.
The Reserve Bank of India (RBI) cut the benchmark repo rate, the level at which it lends to commercial banks, 25 basis points to 5.25 percent after a unanimous vote by its monetary policy committee.
Some analysts had expected officials to stand pat, given that the bank had already cut rates more than 100 basis points this year and economic growth hit a six-quarter high in July-September.
But a majority had argued that easing price pressures and mounting risks to India's economic outlook stemming from Trump's tariffs justified a reduction.
With US tariffs sitting at 50 percent, exporters are warning of cancelled orders and widespread job losses, while analysts say the tolls could knock up to 80 basis points off economic growth this year.
And while Indian officials remain optimistic of finalising the first phase of a trade deal by the end of the year, neither side has announced a breakthrough.
RBI Governor Sanjay Malhotra said the monetary policy committee also agreed to pump cash into the financial system through buying government bonds and a $5 billion foreign exchange swap.