As it moved to increase banking-sector liquidity by up to $16 billion to maintain a “goldilocks” economy, the Reserve Bank of India (RBI) lowered its key repo rate by 25 basis points on Friday, leaving the door open for additional easing. Punitive tariffs imposed by US President Donald Trump are putting pressure on the fifth-largest economy in the world, increasing its trade deficit and driving its currency to a historic low.
The administration of Indian Prime Minister Narendra Modi has accelerated domestic economic changes, such as lowering consumer taxes, modifying labor laws, and loosening financial sector restrictions, in response to global challenges.
In line with a consensus view, the RBI’s six-member monetary policy committee unanimously decided to cut the repo rate to 5.25 percent. They also took a “neutral” posture, indicating that additional rate reductions may be possible.
Since February 2025, the central bank has reduced interest rates by a total of 125 basis points, which is the most significant reduction since 2019. In August and October, it maintained rates. In a video speech, RBI Governor Sanjay Malhotra stated that the Indian economy is at a “rare goldilocks” moment. According to Malhotra, India’s economy has seen rapid disinflation since October, which has gone beyond the central bank’s lower tolerance threshold, although growth has remained robust.
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