RBI Keeps Interest Rate Steady at 5.5% Amid Trump Tariff Threats

The Reserve Bank of India (RBI) has kept its benchmark repo rate unchanged at 5.5%, aligning with what most economists had predicted. This decision follows the aggressive 50-basis-point rate cut in June and comes at a time when U.S. trade tensions are flaring up.

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Markets React to RBI Move

Following the announcement, Indian equity markets saw a minor dip, with the Nifty 50 down 0.18% and the Sensex slipping slightly. Meanwhile, the rupee strengthened to 87.72 against the U.S. dollar, showing limited immediate impact from the rate hold.

Geopolitical Concerns Persist

The RBI ’s decision comes amid renewed trade tensions with the U.S., particularly over India’s imports from Russia. President Donald Trump has threatened higher tariffs and penalties in response to India’s defense and energy deals with Russia.

Policy Stance Turned Neutral

RBI Governor Sanjay Malhotra stated that the policy stance has now shifted from “accommodative” to “neutral.” This means the Monetary Policy Committee (MPC) will take a data-driven approach moving forward, closely monitoring inflation and global economic indicators before making further moves.

Inflation and Growth Outlook

India’s inflation fell to a six-year low of 2.1% in June, creating some room for future rate cuts. Additionally, India’s economy grew at a strong 7.4% in the March quarter, outpacing forecasts and contributing to a full-year GDP growth of 6.5%, in line with government targets.

What Analysts Say

Analysts at Bank of America noted that the RBI’s earlier aggressive rate cut was a signal that policy support may not be immediate unless there is a significant shift in the macroeconomic scenario. They anticipate a possible rate cut in Q4 2025, depending on how GDP trends evolve.

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