RBI cuts India's GDP growth forecast amid Trump's tariff tensions
What's the story
The Reserve Bank of India (RBI) has cut its GDP growth forecast for the ongoing fiscal year by 20 basis points to 6.5%.
The revision comes amid the possible effect of 26% US tariffs on Indian goods, as US President Donald Trump has announced.
The RBI's Monetary Policy Committee (MPC) had earlier estimated a GDP growth rate of about 6.7% for FY26.
Economic outlook
RBI revises quarterly growth projections
The RBI has revised its quarterly growth estimates for FY26, now projecting 6.5% growth in Q1; 6.7% in Q2; 6.6% in Q3; and 6.3% in Q4.
These are lower than earlier estimates of 6.7%, 7%, and the last two quarters at 6.5%.
The Indian economy is projected to have slowed to a four-year low of 6.5%, in the fiscal year ending March 31 due to high inflation, tight liquidity, and stricter RBI norms impacting loan growth.
Rate cut
RBI cuts interest rates and shifts monetary stance
The MPC has cut interest rates by 25 basis points to 6% and changed its stance from 'neutral' to 'accommodative.'
RBI Governor Sanjay Malhotra said, "Today's change in stance means absent any shocks in future, MPC is considering only two options - status quo or rate cuts."
Despite global disruptions from new US tariffs, government officials remain confident of meeting their growth projection for FY26 if oil prices stay below $70 per barrel.
Tariff effects
Economic impact of US tariffs on India
Goldman Sachs has cut its growth estimate to 6.1% from 6.3%, while Citi anticipates a 40 basis point drag on growth due to Trump tariffs.
Mumbai-based QuantEco Research estimates a 30 basis point hit, while HSBC and UBS Securities predict a potential 20-50 basis points cut off India's growth this fiscal year.
However, lower impacts are anticipated if India can negotiate a favorable trade deal with the US.