The Reserve Bank of India (RBI) Governor, Sanjay Malhotra, on Friday said the high tariffs imposed by the United States had minimal impact on the Indian economy. The RBI has raised its gross domestic product (GDP) growth forecast for the current fiscal year, 2025-26, to 7.3% from 6.8% previously.
“Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience,” Malhotra said in a televised speech.
“The headroom provided by the inflation outlook has allowed us to remain growth supportive,” he said.
Malhotra’s remarks came amid the policy rate (repo) cut by the Reserve Bank by 25 basis points (bps) to 5.25% after a unanimous vote by its monetary policy committee.
More rate cuts
The central bank also signalled more rate cuts could be on the way as low inflation provided room to help cushion the world’s fifth-largest economy against US President Donald Trump’s tariff blitz.
The decision also comes after the rupee hit a record low against the US dollar this week. It dropped around 5% in 2025, owing to ongoing concerns about the lack of a trade deal with the US and the impact of levies on Indian goods.
The bank had already reduced rates by more than 100 basis points this year, and economic growth hit a six-quarter high in the July-September quarter.
With US tariffs sitting at 50%, exporters are warning of cancelled orders and widespread job losses.
The US tariffs have started to , with India’s overall exports declining 11.8% year-over-year in October, primarily due to a decrease in shipments bound for the US.
‘Goldilocks Period’
Governor Sanjay Malhotra also said that inflation at a record low and growth above 8% mean India was in a “rare Goldilocks period.”
“The growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum,” he said.
Inflation fell to 0.25% in October, well below the RBI’s 4% target, prompting the bank to lower its forecast for the fiscal year through March to 2% from 2.6%.
The RBI also announced steps to inject about $16 billion into the banking system through bond purchases and a foreign-exchange swap. Following this, India’s sovereign 10-year bonds rose, with the yields falling 6 basis points to 6.45%.
The liquidity steps are expected to offset the cash drain caused by its US dollar sales in the currency market as it supports a weakening rupee.
Malhotra said the main purpose of the open-market bond purchases was to infuse primary liquidity and not to influence the currency or bond yields.