India cuts rates to 5.25% as expected as central bank flags ‘weakness in some key economic indicators’
Reserve Bank of India logo in front of its headquarters in Mumbai on February 7, 2025.
Indranil Mukherjee | Afp | Getty Images
India’s central bank cut its policy rate by 25 basis points to 5.25 percent, matching the forecast of economists surveyed by Reuters.
Although headline inflation has eased significantly and is expected to be revised lower in the first quarter of 2025, the monetary policy committee unanimously made the cut, citing “weakness in some key economic indicators”, said RBI governor Sanjay Malhotra.
The economy exceeded expectations by growing 8.2% from July to September, while inflation remained low.
Explaining the rationale for keeping rates unchanged at the last policy meeting in October, RBI’s Malhotra warned that although inflation moderated significantly in the first quarter, growth could still slow in the second half of the financial year due to global trade uncertainties.
Still, industrial activity fell to a 14-month low in October, and indicators such as HSBC’s manufacturing PMI fell to a nine-month low in November, signaling an economic slowdown.
Exports to the US, one of India’s major trading partners, fell for the second consecutive month in October. 8.5% It increased to 6.3 billion dollars compared to a year ago. General outgoing shipments in October also down 11.8% It reached 34.38 billion dollars.
Washington has been imposing a 50 percent tariff on Indian goods since August. To offset the impact of tariffs, New Delhi cut goods and services tax rates in September ahead of the month-long festive season to boost domestic demand.
GST tax collections rose 4.6% to 1.95 trillion rupees ($21.7 billion) in October from a year earlier, but growth slowed in November, with a modest 0.7% increase in gross collections of 1.7 trillion rupees.
The Indian rupee has weakened against the dollar in recent days, rising above a key level of 90 rupees per dollar on Wednesday before paring its losses.
Sanjay Mathur, ANZ’s chief economist for India and Southeast Asia, said there had been “no major increase in bank lending” despite the policy rate cut earlier this year. He added that although there is no clarity on the signing of the US-India trade agreement, the impact of tariffs on the economy is visible.
