The Reserve Bank of India (RBI) has implemented a larger-than-expected reduction to its benchmark policy rate, lowering it to 5.5% from 6%—its lowest level since August 2022. This marks the third consecutive reduction since February and moves the rate beneath market expectations, which had anticipated a cut to 5.75%.
The move follows softer inflation readings, with headline inflation for April at 3.16%, the lowest since July 2019. Inflation is forecast to average 3.7% for the current financial year, down from a previous projection of 4%, amid sustained moderation in commodity prices including crude oil.
At the same time, after India’s GDP expanded by 7.4% year-on-year in the fiscal fourth quarter—beating expectations of 6.7%—the central bank maintained its growth outlook for the entire year at 6.5%, signaling a considerable slowdown from the 9.2% growth in the previous year.
Despite encouraging economic data, the RBI signaled a more cautious approach going forward, shifting its policy stance from “accommodative” to “neutral” and noting limited space for further monetary support.
Policymakers underscored the need to closely monitor weather patterns and global trade developments, particularly tariff risks, as possible headwinds. The Monetary Policy Committee will evaluate incoming data and economic trends to ensure an appropriate balance between supporting growth and containing inflation.
