India Keeps Rates Unchanged As Trade Uncertainty Looms

India’s central bank left its benchmark interest rate unchanged despite a benign inflation outlook, as policymakers opted for a wait-and-watch approach amid US President Donald Trump’s threats of additional tariffs on the South Asian nation.

The Reserve Bank of India’s six-member monetary policy committee, headed by Governor Sanjay Malhotra, voted unanimously to keep the repurchase rate steady at 5.50% on Wednesday, a move predicted by 23 out of 35 economists surveyed by Bloomberg. The central bank retained its policy stance at “neutral.”

The decision to pause suggests the central bank is waiting to assess the full impact of US tariffs on India’s already slowing economy, even as inflation eased to its lowest level in more than six years in June. A hawkish US Federal Reserve and recent weakness in the rupee are also giving the RBI reason to stay cautious.

With tariff-related uncertainties still evolving and the effects of previous rate cuts still playing out, there’s a case for “continuation” of the current monetary policy rate, Malhotra said in a televised speech from Mumbai. “The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path.”

India’s sovereign bonds fell, with the yield on 10-year government note rising five basis points to 6.38%. The rupee traded higher, while stocks extended declines.

The rate hold suggests the MPC is keeping its “powder dry, should things worsen on trade and tariff front,” said Garima Kapoor, an economist with Elara Securities Ltd

The pause follows an unexpectedly large reduction in June, taking the cumulative cuts to 100 basis points since February. It also comes amid heightened uncertainty after Trump hit the South Asian nation with a 25% tariff rate — higher than Asian rivals like Vietnam and Indonesia — and threatened additional penalties over New Delhi’s ties with Moscow.

In his speech, the governor said India’s economy remains resilient, though external demand prospects are “uncertain amid ongoing tariff announcements and trade negotiations.” Taking these factors into account, the central bank held its growth forecast for the current fiscal year that started in April at 6.5%, while lowering its inflation estimate to 3.1% from 3.7%.

“As of now, we do not have sufficient data to revise the GDP forecasts,” Malhotra said in the post-policy briefing to reporters. “It’s all very very uncertain,” he said, adding the central bank is hopeful of an “amicable solution” to trade negotiations.

“The Reserve Bank of India’s decision to hold rates steady shows the central bank’s preference for currency stability over supporting growth for now. By refraining from a rate cut, the RBI aims to prevent capital outflows and limit further rupee weakness, especially as higher US tariffs kick in on Thursday and tensions rise over India’s Russian oil imports,” says

Abhishek Gupta, India economist, Bloomberg Economics.

The inflation outlook for the current year has turned more benign than anticipated in June, the governor said in his address. While a good monsoon and encouraging progress in sowing are expected to help ease food prices in the near term, consumer price index may edge above 4% during the January–March period, he said.

“With inflation likely to trend higher post the near term favourable trends, the bar for rate cuts ahead is set very high,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank Ltd “We can see some room for the last leg of easing only if growth momentum slows significantly.”

When asked about the inflationary impact if India were to halt purchases of Russian oil — a key demand from Trump — the governor said, he does not see a “major impact as of now,” adding that the government would take “appropriate” fiscal measures if needed.

On liquidity, Malhotra said the central bank will continue to be nimble and flexible. A central bank working group has recommended that the weighted average call rate continue to be the operating target of monetary policy, he added.