India’s Central Bank Holds Steady on Rates Amid US Tariff Concerns

 

On August 8, 2025, India’s Reserve Bank (RBI) maintained its benchmark repo rate at 5.50%, a decision widely anticipated by economists but accompanied by warnings about the economic fallout from new US tariffs. The RBI’s cautious stance reflects a delicate balancing act as it navigates persistent inflation and the potential disruptions caused by President Trump’s trade policies, which impose duties of up to 25% on Indian exports. Governor Shaktikanta Das emphasized that while India’s economy is projected to grow at 6.5% for the fiscal year, the tariffs could shave off up to 0.4% of GDP, particularly impacting sectors like textiles and pharmaceuticals.Inflation remains a key concern, with June’s consumer price index at 3.1%, slightly above the RBI’s 3% target. The central bank noted that food and fuel prices, which constitute nearly half of the inflation basket, are under pressure due to global supply chain disruptions exacerbated by the US tariffs. Bond yields rose, with the 10-year government bond climbing to 6.96%, reflecting investor unease. Meanwhile, the Sensex and Nifty indices dipped 0.7% and 0.8%, respectively, as markets reacted to the RBI’s cautious outlook and the looming trade challenges.Despite these headwinds, India’s economic fundamentals remain robust. Strong domestic consumption and a services sector growing at 7.2% in Q2 2025 have bolstered resilience. The RBI projects retail inflation to average 3.2% for the year but flagged risks from imported inflation due to the US duties. Some analysts anticipate the RBI may consider 50 basis points in rate cuts later in 2025 if global trade tensions ease, though Governor Das stressed a data-dependent approach. The recent strengthening of the rupee, supported by $680 billion in foreign exchange reserves, offers a buffer against external shocks.For Indian households, the interplay of tariffs and inflation could mean higher costs for imported goods, from electronics to medicines, squeezing budgets in urban centers like Mumbai and Delhi. Yet, the growth of small businesses, up 5.8% in 2025, signals resilience among entrepreneurs. As India braces for the tariff impact, the RBI’s steady hand aims to safeguard growth while keeping inflation in check, a challenge that will resonate with families and businesses navigating an uncertain global economic landscape.