RBI May Cut Interest Rates Amid Global Trade Tensions: Will Loans Become Cheaper Soon?

In a move that could bring relief to borrowers, the Reserve Bank of India (RBI) is likely to consider a significant cut in interest rates, with speculations pointing toward a reduction of 75 to 100 basis points over the course of the financial year. The expected move comes in the backdrop of rising global trade tensions, triggered by the recent imposition of tariffs by U.S. President Donald Trump—an action that could ripple into the Indian economy.

February Meeting: A Modest Start

The RBI’s six-member Monetary Policy Committee (MPC) last met in February and decided on a modest cut of 25 basis points in the repo rate. This marked the beginning of what analysts believe could be a more aggressive stance in the coming months, aimed at countering external economic pressures and fostering domestic growth.

Another Rate Cut on the Cards?

The MPC is scheduled to reconvene next week, and economists are predicting another rate cut of 25 basis points. The recently imposed U.S. tariffs on India are expected to dampen the country's economic growth rate by approximately 30 basis points. Additionally, the slowdown in U.S. GDP growth and a decline in global exports could contribute to a further 20 basis point drop.

In total, a cumulative impact of 50 basis points on India’s economic growth is being projected, which may prompt the central bank to act swiftly. Interestingly, the relatively low level of tariffs on Indian goods may make it easier for other countries to supply goods to India at competitive prices—an outcome that could help contain inflation.

Outlook for the Financial Year: Up to 100 Basis Points Cut Possible

Investment bank Goldman Sachs has projected India’s inflation rate to stay below 4% throughout 2025. This stable inflation outlook gives the RBI additional room to maneuver its monetary policy. Analysts believe that the central bank may implement a total rate cut of 100 basis points during the fiscal year—possibly delivering 25 basis point reductions in both the second and third quarters.

If these projections hold true, Indian consumers and businesses could benefit from more affordable loans, spurring demand in key sectors such as housing, automotive, and infrastructure.