India’s central bank keeps policy rates steady at 5.25% as U.S., EU trade deals ease growth concerns

India’s central bank kept policy rates unchanged on Friday as growth headwinds eased following the announcement of trade deals with the EU and the US.

Economists surveyed by Reuters had predicted that the policy rate would remain unchanged at 5.25%.

The Reserve Bank of India has cut benchmark interest rates by 125 basis points in 2025, and economists say the focus will shift to carrying over previous interest rate cuts.

The RBI will likely keep interest rates steady for at least a year, Santanu Sengupta, chief India economist at Goldman Sachs, told CNBC’s “Inside India.” He added that “the possibility of a rate cut is out” if the US-India trade deal is not concluded.

Earlier this week, US President Donald Trump announced that Washington would reduce tariffs on Indian exports to 18%, allaying concerns about external headwinds to growth that the central bank flagged at its last policy meeting.

The US has soured ties between New Delhi and Washington by imposing 50% tariffs on India, among the highest among countries, and more than on China, with which it has a hostile relationship.

Sengupta said the RBI will focus on transmitting rates as long-term bond yields are “unlikely to fall” as banks and insurance companies reduce purchases of long-term government bonds as bond supply increases.

India will borrow 17.2 trillion rupees ($187 billion) in the fiscal year starting April 1, Finance Minister Nirmala Sitharaman said in her budget speech on Sunday. This figure represented an 18% increase over the revised forecast for fiscal 2026 and was above market forecasts.

In its policy meeting in December, the RBI unanimously decided to reduce the interest rate by 25 basis points to 5.25%, citing “weakness in some key economic indicators”.

However, with the uncertainty over the India-US trade deal over, the RBI is currently expected to keep interest rates steady.

The country’s economy is expected to grow by 7.4% in the fiscal year ending March 2026, and between 6.8% and 7.2% in the following year, according to the Indian economic survey released a few days before the US-India deal was announced. This puts India on track to retain its crown as the world’s fastest-growing major economy.

The RBI doesn’t have much to worry about on the inflation front either. India’s consumer inflation rose to 1.33% in December, accelerating slightly from 0.71% in the previous month.