The Reserve Bank of India’s Monetary Policy Committee on Wednesday cut the repo rate by 25 basis points, lowering it to 6% from 6.25%.
This is the second consecutive cut under Governor Sanjay Malhotra, who took office earlier this year. In February, the committee had cut the repo rate by 25 basis points, lowering it to 6.25% from 6.5%.
The repo rate is the interest rate at which the central bank lends money to commercial banks. The Monetary Policy Committee decides on changes to it every two months.
A basis point is one-hundredth of a percentage point. Basis points are used to describe the percentage change in the value of a financial instrument.
Central banks usually reduce repo rates to stimulate economic growth by making borrowing cheaper for individuals and businesses. This translates to lower equated monthly instalments, or EMIs, for borrowers.
The move to cut repo rates on Wednesday came against the backdrop of the so-called reciprocal tariffs by the United States taking effect on Wednesday.
During a press briefing, Malhotra said the Monetary Policy Committee was unanimous in its decision to cut the repo rates in its meeting held from Monday to Wednesday.
The committee also decided to change the monetary policy stance from neutral to accommodative. “Our stance provides policy rate guidance without any direct guidance on liquidity management,” Malhotra said.
A neutral stance means that the Reserve Bank remained flexible in adjusting policy rates based on prevailing economic conditions. An accommodative stance focuses on supporting economic growth by lowering interest rates.
After the imposition of the reciprocal tariffs, India’s benchmark stock indices fell about 0.4% as trading began on Wednesday morning. The Sensex had fallen by about 200 points as of 9.45 am. The Nifty 50 had dipped about 82 points.
Washington imposed “reciprocal” tariffs on dozens of countries, including a 26% “discounted” levy on India. The new tariffs were announced by US President Donald Trump on April 2.
Trump also announced a 10% minimum tariff on most goods imported into the country, which took effect on Saturday. The US government imposed a 25% tariff on all foreign-made automobiles, which took effect on April 3.
Trump had repeatedly said he intended to impose a reciprocal tax on India, among others, citing high tariffs the countries impose on foreign goods. He has already imposed tariffs on a range of products from Canada, Mexico and China.
The tariffs have led to concerns of a broader trade war that could disrupt the global economy and trigger recession.
A day after the tariffs plan was announced, New York-based financial services firm JPMorgan revised its odds for a global recession by the end of 2025 from 40% to 60%. Financial services firm Goldman Sachs has raised the probability of a recession in the US to 45% in the next 12 months from the current 35%.