India's RBI holds rates as Trump imposes additional tariff

INDIA's central bank maintained its key interest rate at 5.50 per cent on Wednesday (6), as US president Donald Trump issued an executive order imposing an additional 25 per cent tariff on goods from India.

The Reserve Bank of India (RBI) kept steady the repurchase rate, the level at which it lends to commercial banks, after a unanimous vote by a six-member panel.

A majority of analysts had forecast a pause following a surprise 50-basis-point reduction in June.

The US tariff is set to take effect in three weeks and would be added on top of a separate 25 per cent tariff entering into force on Thursday (7). It maintains exemptions for items targeted by separate sector-specific duties such as steel and aluminum, and categories that could be hit like pharmaceuticals.

Reserve Bank governor Sanjay Malhotra said global trade challenges remained but that the "Indian economy holds bright prospects in the changing world order".

"We have taken decisive and forward looking measures to support growth," he said in a statement.

The RBI cut rates for the first time in nearly five years in February and followed up with two other reductions in April and June.

The Indian government has forecast above-average monsoon rains, which observers say should help growth, as higher agricultural output will aid the rural economy and keep vegetable prices stable.

But Trump's announcement on Tuesday (5) to "substantially" hike tariffs on Indian imports because of New Delhi's purchases of Russian oil has added pressure on India.

Before that threat was made, the existing 10 per cent US tariff on Indian products was already due to rise to 25 per cent on Thursday.

Malhotra acknowledged that "the uncertainties of tariffs are still evolving" even though "growth is robust".

Trump's pressure on India comes after he signalled fresh sanctions on Russia if it did not make progress by Friday (8) towards a peace deal with Ukraine.

India, the world's most populous country, is not an export powerhouse, but the US is its largest trading partner.

(Agencies)