Adobe StockMarket Radar India: RBI Rate Hold & US Tariff Impact
As the World Bank cuts its growth forecast on US tariff fears, India counters with a potential RBI rate cut and record spending
October 7, 2025Real Estate
Written by Jorge Aguinaga
External headwinds are intensifying as the World Bank has cut its 2026 economic growth forecast for South Asia to 5.8%, a 25-year low excluding periods of global recession. The report directly cites the impact of "punishing US tariffs on India" as a key factor weighing on the outlook.
While India’s GDP is still projected to grow 6.5% in the current financial year, the forecast for the next fiscal year has been trimmed to 6.3%. The 50% US tariffs now cover more than three-quarters of goods shipped to the US - India’s largest market - hitting labour-intensive industries like textiles and jewellery the hardest.
Monetary Policy: The Reserve Bank of India (RBI) unanimously voted to keep its policy repo rate unchanged at 5.50% in its latest meeting. However, the central bank’s commentary was described as "dovish," signalling room for a potential rate cut in December.
The RBI noted that low inflation has "opened up policy space for further supporting growth". In a sign of confidence in the near term, the RBI actually raised its GDP forecast for the current year to 6.8% from a previous estimate of 6.5%.
Fiscal Policy: Finance Minister Nirmala Sitharaman stressed that India's growth is "firmly anchored in its domestic factors, which minimises the impact of external shocks".
The government is committed to increasing state capital spending to support the economy, announcing plans to spend a record INR 11.21 trillion (USD 126.3 billion) on infrastructure for the fiscal year. This, along with recent consumer tax cuts, is designed to stimulate domestic demand and cushion the impact of the tariffs.
Underscoring the commitment, UK Prime Minister Keir Starmer is leading a delegation of more than 100 British business, academic, and cultural leaders to India to deepen commerce between the two countries.
For India, the agreement signals its readiness to lower trade barriers as it seeks to negotiate further pacts with the US and European Union.
External headwinds are intensifying as the World Bank has cut its 2026 economic growth forecast for South Asia to 5.8%, a 25-year low excluding periods of global recession. The report directly cites the impact of "punishing US tariffs on India" as a key factor weighing on the outlook.
While India’s GDP is still projected to grow 6.5% in the current financial year, the forecast for the next fiscal year has been trimmed to 6.3%. The 50% US tariffs now cover more than three-quarters of goods shipped to the US - India’s largest market - hitting labour-intensive industries like textiles and jewellery the hardest.
Domestic strategy
In response to the external challenges, India is deploying a dual strategy focused on monetary flexibility and fiscal strength.Monetary Policy: The Reserve Bank of India (RBI) unanimously voted to keep its policy repo rate unchanged at 5.50% in its latest meeting. However, the central bank’s commentary was described as "dovish," signalling room for a potential rate cut in December.
The RBI noted that low inflation has "opened up policy space for further supporting growth". In a sign of confidence in the near term, the RBI actually raised its GDP forecast for the current year to 6.8% from a previous estimate of 6.5%.
Fiscal Policy: Finance Minister Nirmala Sitharaman stressed that India's growth is "firmly anchored in its domestic factors, which minimises the impact of external shocks".
The government is committed to increasing state capital spending to support the economy, announcing plans to spend a record INR 11.21 trillion (USD 126.3 billion) on infrastructure for the fiscal year. This, along with recent consumer tax cuts, is designed to stimulate domestic demand and cushion the impact of the tariffs.
Forging new alliances
While facing trade friction with the US, India is actively strengthening other global partnerships. A long-awaited free trade agreement with the United Kingdom was finalised in July, a deal set to remove tariffs on more than 90% of UK goods.Underscoring the commitment, UK Prime Minister Keir Starmer is leading a delegation of more than 100 British business, academic, and cultural leaders to India to deepen commerce between the two countries.
For India, the agreement signals its readiness to lower trade barriers as it seeks to negotiate further pacts with the US and European Union.