RBI Poised to Hold Rates as US Tariffs Raise Growth Risks

The Reserve Bank of India (RBI) is widely expected to keep its repo rate unchanged at 5.50% on Wednesday, but chances of another rate cut have risen after the U.S. imposed steep tariffs on Indian exports last week. According to a Reuters poll conducted July 18–24, 44 of 57 economists see the RBI maintaining rates.

The new 25% tariff has heightened concerns over economic growth, with ANZ Research noting it adds a “growth shock” to an already fragile outlook. Both growth and inflation are projected to fall short of the RBI’s forecasts. The central bank delivered a surprise 50-basis-point cut in June and shifted to a neutral stance, signaling future moves will be data-driven.

India’s manufacturing PMI rose to 59.1 in July, its fastest pace in 16 months, but business confidence sank to a three-year low on competitive and inflationary pressures. Retail inflation eased to 2.10% in June, a six-year low near the RBI’s lower tolerance limit, with July inflation expected to hit a record low.

Barclays’ India chief economist Aastha Gudwani said the low inflation backdrop supports easing but may not justify a fourth straight cut. Nomura raised its probability of an August cut to 35% from 10% but maintained that the bar remains high after June’s move.

RBI Governor Sanjay Malhotra has stated the inflation battle is “won” but the “war” continues, with policy guided by growth and inflation outlooks. Markets are not pricing in a rate cut, though a surprise move could trigger a rally. Traders are also watching for a possible revised liquidity framework announcement alongside the policy decision.