India's central bank pauses rate cuts after 2025 easing as US trade deal reduces tariffs to 18%, lifts rupee, and shifts focus to liquidity management amid bond yield pressures.
India's central bank pauses rate cuts after 2025 easing as US trade deal reduces tariffs to 18%, lifts rupee, and shifts focus to liquidity management amid bond yield pressures.
In 2025, under Governor Sanjay Malhotra, the RBI cut its repo rate by a cumulative 125 basis points—from 6.50% in February to 5.25% on December 5. It was the sharpest easing since 2019. The cuts came with $16 billion in liquidity injections via bond purchases and a dollar-rupee swap, which Malhotra called a rare Goldilocks period of sub-target inflation and strong growth.
On February 6, 2026, the RBI's Monetary Policy Committee unanimously held the repo rate at 5.25%. The pause marked a shift to liquidity management through open market operations. The central bank cited firm government bond yields and persistent currency volatility despite the trade deal relief.
A US-India trade deal announced in early February reduced tariffs from up to 50% to 18%, easing export pressures that had driven a record $41.7 billion October 2025 trade deficit and rupee lows near ₹88–90. Under the agreement—to be signed by mid-March—India commits to purchasing $500 billion in US energy and technology products by 2030 and ending Russian oil imports while the US shields agriculture and dairy. The rupee surged over 1% to 90.27 following the announcement, and external stability improved, though the central bank remains vigilant about bond yields and capital outflows that have tightened financial conditions despite earlier rate cuts.
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Latest: February 6th, 2026 · 4 months ago
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February 2026
RBI MPC holds repo at 5.25%, shifts focus to liquidity
LatestMonetary Policy Decision
The Monetary Policy Committee unanimously keeps the repo rate unchanged at 5.25%, ending the 2025 easing cycle. RBI signals focus on liquidity management via open market operations rather than rate cuts, citing firm bond yields, currency volatility and global uncertainties despite trade deal relief.
RBI MPC Feb meeting begins; consensus expects rate hold post-US trade deal
Monetary Policy Decision
MPC convenes Feb 4–6 for FY26 final review; economists poll sees repo unchanged at 5.25%, neutral stance amid tariff relief, rupee surge, and stable growth/inflation outlook.
Commerce Minister Piyush Goyal confirms India-US trade deal will cut US tariffs to 18% from 50%, with India committing to buy $500 billion in US energy and tech products by 2030 and ending Russian oil imports. Deal to be signed by mid-March; farmers and sensitive sectors shielded from US competition.
January 2026
India-US trade deal cuts tariffs to 18%, rupee surges 1.38% to 90.27
Trade Policy
US reduces tariffs on Indian exports from up to 50% (25% in polls) to 18%, prompting rupee's biggest single-day gain in 7 years and easing external risks after record deficits.
December 2025
RBI cuts repo to 5.25% and announces $16B liquidity boost
Monetary Policy Decision
The MPC unanimously cuts the repo rate by 25 bps to 5.25%, taking total 2025 easing to 125 bps, and unveils ₹1T of bond purchases plus a $5B three‑year FX swap to inject up to ~$16B into the banking system. Growth forecasts are raised to 7.3% and inflation lowered to 2%, as Malhotra characterises India’s economy as in a ‘rare Goldilocks’ phase despite rupee weakness near record lows.
November 2025
India posts record $41.7B monthly trade deficit
Macro Data
Official data show India’s October 2025 trade deficit widening to a record $41.68B as exports fall 11.8% y/y—hit by US tariffs—while imports surge 16.6% on strong domestic demand and bullion purchases. Analysts warn of current‑account and rupee pressures.
October 2025
Inflation undershoots sharply; October CPI near zero
Macro Data
Retail inflation prints at an unprecedented 0.25% in October, aided by base effects and falling food and fuel prices, pushing headline CPI below the RBI’s lower tolerance band and reinforcing expectations of further easing.
RBI holds but cuts inflation forecasts, hints at December move
Monetary Policy Decision
The MPC keeps the repo at 5.50% for a second meeting, maintains a neutral stance and lowers its FY26 inflation projection to 2.6%. Officials signal that if disinflation persists, a December rate cut is on the table.
September 2025
GST cut boosts imports and domestic demand
Fiscal Policy
A substantial cut in India’s goods and services tax, effective late September, fuels festive‑season consumption and contributes to a surge in gold and other imports, setting the stage for a record trade deficit a month later.
Rupee hits record low as US tariffs bite and FPIs exit
Market Move
The rupee slides to a record low around 88.44 per dollar, making it Asia’s worst‑performing major currency in 2025. Analysts cite punitive US tariffs, heavy foreign investor outflows and concerns over the widening trade deficit.
August 2025
RBI pauses at 5.50% but eases CRR
Monetary Policy Decision
The August MPC meeting keeps the repo rate at 5.50% with a neutral stance after three consecutive cuts, while implementing a phased 100 bp CRR reduction to 3% to support liquidity as global uncertainties rise.
Trump administration unveils steep tariffs on Indian exports
Trade Policy
The US announces sharp tariff hikes on Indian goods, with some sectors facing combined duties near 50 percentage points, citing India’s trade surplus and ties with Russia. The move hits labour‑intensive industries such as shrimp, textiles and gems.
June 2025
RBI surprises with 50 bp ‘jumbo’ cut to 5.50%
Monetary Policy Decision
In its June meeting the MPC cuts the repo rate by 50 bps to 5.50%, the largest move since the COVID‑19 emergency, and shifts stance back to neutral. Inflation forecasts are revised down to around 3.7% for FY26, while growth is kept at 6.5%.
April 2025
Second cut and shift to accommodative stance
Monetary Policy Decision
The RBI trims the repo rate by another 25 bps to 6.00% and changes its stance from neutral to accommodative, lowering FY26 growth and inflation forecasts while flagging global trade tensions and emerging US‑tariff risks.
February 2025
RBI delivers first rate cut in nearly five years
Monetary Policy Decision
The MPC unanimously cuts the repo rate by 25 bps to 6.25%, citing easing inflation and still‑soft growth. Malhotra keeps a neutral stance, signalling that further cuts are possible but not guaranteed.
December 2024
Malhotra takes charge amid slowing growth and high inflation
Macro Context
Malhotra assumes office with GDP growth down to about 5.4% and inflation above 6%, after his predecessor kept rates at 6.5% while easing liquidity via a cash‑reserve‑ratio cut. Economists anticipate rate cuts by spring 2025.
Sanjay Malhotra appointed RBI Governor
Leadership Change
India’s Appointments Committee of the Cabinet names Revenue Secretary Sanjay Malhotra as the 26th RBI Governor for a three‑year term, replacing Shaktikanta Das and raising expectations of a shift toward more growth‑oriented monetary policy.
Historical Context
3 moments from history that rhyme with this story — and how they unfolded.
1 of 3
February–December 2019
RBI’s 2019 Rate Cut Cycle and Subsequent Pause
In 2019 the RBI, then under Governor Shaktikanta Das, cut the repo rate five times in a row, reducing it by a cumulative 135 bps to 5.15%, its lowest level in nine years, in an effort to counter a sharp growth slowdown. However, when inflation later spiked and remained above the target band, the central bank surprised markets in December by pausing further easing and signalling caution, despite continued weakness in activity.
Then
The rate cuts provided limited relief to growth as transmission through the banking system was slow; inflation remained contained initially but later rose sharply, forcing the RBI to reassess.
Now
The episode reinforced the bank’s emphasis on real rates and inflation targeting, and it illustrated how quickly the space for easing can close if price pressures return.
Why this matters now
The 2019 cycle is a clear precedent for the current easing: the RBI again has cut aggressively in a short span, and the risk is that today’s near‑zero inflation could move back toward target faster than expected, limiting further cuts and potentially forcing a pause or reversal.
2 of 3
July 1997 – 1999
The 1997–98 Asian Financial Crisis
The Asian financial crisis began in Thailand in July 1997 when the baht’s peg to the US dollar collapsed, then spread to Indonesia, South Korea and other economies. Countries with large current‑account deficits, high foreign‑currency borrowing and fixed or tightly managed exchange‑rate regimes suffered massive currency depreciations—over 50% in several cases—stock‑market crashes and deep recessions, prompting large IMF‑led rescue packages.
Then
Currencies and asset prices collapsed, corporate and banking crises erupted, and output contracted sharply across much of East and Southeast Asia.
Now
The affected countries overhauled financial regulation, built larger FX‑reserve buffers and often moved toward more flexible exchange‑rate regimes; their experience still shapes how emerging markets manage external shocks.
Why this matters now
India today is far more insulated than those crisis economies, but the episode underscores how quickly external imbalances, currency mismatches and confidence shocks can turn a ‘Goldilocks’ narrative into a balance‑of‑payments crisis—especially if monetary policy is seen as too loose relative to external risks.
3 of 3
2018–present (with acute phase in 2018–2019)
Turkey’s Lira Crisis and the Dangers of Premature Easing
Turkey experienced a severe currency and inflation crisis starting in 2018, when the lira lost around 40–50% of its value amid concerns over President Recep Tayyip Erdoğan’s influence on monetary policy, high external debt and US sanctions and tariffs. The central bank was initially slow to raise rates, then hiked its policy rate to 24% in a bid to stabilise the currency and rein in inflation that had surged above 20%. Subsequent episodes saw renewed pressure whenever policymakers cut rates aggressively despite still‑high inflation.
Then
The lira’s collapse fuelled a spike in inflation, a recession and stress in Turkey’s highly dollarised corporate sector, forcing belated and painful rate hikes.
Now
Turkey’s experience has become a cautionary tale about undermining central‑bank credibility and easing policy into external and political turbulence, with lingering risk premia and currency fragility.
Why this matters now
For India, Turkey illustrates the downside of cutting rates too aggressively when facing external shocks and FX pressure. The RBI’s emphasis on keeping a positive real policy rate and large reserves is partly designed to avoid a Turkish‑style loss of confidence, but the comparison is increasingly raised by global investors when rupee weakness and political pressure coexist with easing.
