RBI Keeps Repo Rate Unchanged at 5.5% | Impact of Trump’s Tariffs on India | August 2025 Update

J Venkateswara Rao
Aug 7
2 min read

Key Insights from RBI’s Rate Decision

On 6–7 August 2025, the Reserve Bank of India's Monetary Policy Committee (MPC) unanimously voted to hold the repo rate at 5.50%, staying on a neutral policy path. The RBI warned of rising uncertainties tied to U.S. tariffs while maintaining growth optimism.

RBI’s Rationale: Growth Confidence Amid Global Turmoil

GDP Forecast Intact: The RBI retained its FY26 GDP growth estimate at 6.5%, citing strong rural demand, favorable monsoon, and continued capex momentum.
Inflation Outlook: Consumer Price Index (CPI) inflation dropped to 2.1% in June 2025 and is expected to average 3.1% for the year, although price pressure is likely to return late year.

Even as RBI front-loaded 100 basis points in rate cuts since February, it emphasized that transmission to the broader economy was still unfolding.

Global Backdrop: Trump Tariffs Shake Confidence

New U.S. Tariffs: President Trump imposed 25% duties on Indian exports, threatening further hikes and secondary sanctions tied to India’s Russian oil imports. That could elevate tariffs to as much as 50%.
Economists and the RBI emphasized the uncertainty around the tariffs' economic impact, framing it as a headache for trade and investment sentiment.

While tariffs could reduce India’s GDP growth by around 30–40 basis points, RBI maintained its projections given the economy's predominantly domestic-driven structure. Trade composes only ~2% of GDP.

What RBI’s Stand Signals

RBI trusts that domestic demand and fiscal buffers will cushion the economy.
FX reserves serve as a buffer, allowing the RBI to intervene if the rupee weakens. The RBI reportedly sold USD to support the rupee, though reserves remain robust at ~$689 billion.
Policy makers opted to wait and watch, given transmission lags and global risk signals, rather than risk destabilising financial markets prematurely.

FAQs:

Q1: Why didn’t RBI cut rates further in August 2025?

Because inflation fell sharply due to statistical base effects, but food price volatility and uncertain trade shocks limited room for further cuts.

Q2: Will Trump tariffs hurt India’s growth?

RBI projects only modest impact due to limited exposure of exports to GDP, but warned of potential risk to investment and exports.

Q3: Should consumers expect cheaper loans soon?

Possibly later in 2025, but current inflation projections and transmission delays kept the repo rate unchanged for now.

Q4: Will inflation remain low?

CPI inflation could rise above 4% in Q4 FY26 and average around 4.5% in FY27, per RBI.

Q5: What sectors feel worst in this environment?

Real estate and exports, especially those tied to U.S. markets, are under stress, though fixed investment and rural consumption remain resilient.

Final Take

RBI’s decision to hold rates reflects confidence in India’s domestic engines—rural demand, monsoon growth, and fiscal stimulus—while balancing against global uncertainties triggered by Trump’s tariff threats. With inflation benign and growth steady, the bank prefers patience over premature policy action. The focus now moves to how new tariffs reshape global trade flows, and whether India’s export-oriented sectors can weather the shock.