RBI Governor Warns Of Economic Risks From US Trade Tariffs While Maintaining 5.5% Interest Rate

The Reserve Bank of India maintained its key lending rate at 5.5% during its latest monetary policy review, with Governor Sanjay Malhotra highlighting potential economic challenges from escalating global trade tensions, particularly US tariff policies.

During the three-day Monetary Policy Committee meeting that concluded on August 6, 2025, all members unanimously agreed to keep the policy repo rate unchanged. The central bank also maintained other benchmark rates, including the Standing Deposit Facility at 5.25% and the Marginal Standing Facility at 5.75%.

Governor Malhotra emphasized growing concerns about international trade dynamics, noting that recent tariff declarations and trade discussions could significantly impact India's economic trajectory. He warned that external demand prospects remain clouded by ongoing tariff policies and trade negotiations, creating headwinds for growth alongside persistent geopolitical tensions and global market volatility.

Despite these challenges, the RBI retained its optimistic GDP growth projection of 6.5% for the fiscal year 2025-26. The quarterly breakdown shows expected growth rates of 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4, with Q1 2026-27 projected at 6.6%.

The Governor noted that India's domestic economic fundamentals remain strong, supported by favorable monsoon conditions, declining inflation rates, improved capacity utilization, and conducive financial conditions. Government capital expenditure and supportive monetary policies are expected to sustain economic momentum, with construction and trade sectors likely to drive services growth.

Regarding inflation, Malhotra acknowledged that headline inflation has decreased more than initially projected, primarily due to volatile food prices, especially vegetables. Core inflation has stabilized around the 4% mark as expected, though projections suggest inflation may rise in the final quarter of the financial year.

The central bank had previously reduced rates by 100 basis points since February 2025, with those policy effects still working through the economy. Malhotra noted that while global policymakers face challenges from subdued growth and persistent inflation, India's economy holds promising prospects in the evolving world order due to its inherent strengths and robust fundamentals.

The next monetary policy committee meeting is scheduled for September 29 to October 1, 2025, where officials will continue monitoring domestic and international developments to determine appropriate policy responses.