Trump can wait, RBI builds India first

In an assertive policy pivot aimed at shielding the Indian economy from both internal slowdown and external headwinds, the Reserve Bank of India (RBI) repo and Cash Reserve Ratio (CRR) cut decisions reflect an urgency to fortify domestic demand and build monetary buffers ahead of any external shocks.
The repo rate cut by 50 basis points to 5.40 percent and slashing the CRR by 100 basis points, releases a substantial Rs 2.5 lakh crore in systemic liquidity.
This move goes far beyond textbook monetary easing—it’s a calculated shift toward growth insulation, driven in part by global trade volatility, slowing capital flows, and protectionist rhetoric resurging from the West, especially from the United States. The RBI is shifting dependence on foreign portfolios to domestic investment.
The RBI’s sweeping rate and CRR cuts are not just a response to slowing growth—they are a strategic counter to global turbulence. As trade dynamics harden and election rhetoric in the U.S. turns more inward-looking, India is sending a clear signal: we’ll build our growth engines at home, and we won’t wait for the world to stabilize.
Banks and non-banking finance companies (NBFCs) are now better placed to grow loan books despite global capital uncertainty. The Rs 2.5 lakh crore liquidity injection, through CRR cut, is a strategic play to strengthen domestic credit capacity, in case foreign investment inflows taper due to U.S.-centric policy shifts.
In a world potentially heading toward deglobalization 2.0, the RBI is quietly laying the foundations for an India that is credit-rich, demand-driven, and less vulnerable to foreign tantrums.
This is crucial for raising industrial production. In April 2025, IIP slowed to 2.7 percent against 3 percent growth in March and 5.2 percent in April, 2024. The growth was primarily driven by a 3.4 percent rise in the manufacturing sector. The core sector, which comprises eight key industries, grew by 0.5 percent in April 2025, according to National Statistics Office.
While headline inflation has remained within the RBI’s comfort band of around 4 percent, the lurking risk of imported inflation— rises to 31.1 percent in February 2025 from 1.31 percent in June 2024 – stemming from global prices, shipping costs, geopolitical instability, and currency value decline, continues to be a concern. The RBI appears to have weighed these risks, but is now betting on economic expansion as the bigger imperative, especially as private investment and consumer demand remain below pre-pandemic trajectories.
Financial markets immediately responded to the RBI’s policy announcement with optimism. Sectors such as real estate, banking, automobiles, and financial services rallied. This is preceded by severe fall in the stock markets all through the May and before, causing severe losses.
The value of currency in circulation was around Rs 16.5 lakh crore in November 2016. It has risen to Rs 38.35 lakh crore in May 30, 2025, up from Rs 34.70 lakh crore on September 6, 2024, rising 0.2 percent a week or 7.4 percent in a year.
The overall reserve money (RM) rose by 0.4 percent on the week, to Rs 49.62 lakh crore. The RM, the physical cash held by the public, including banknotes and coins as also the CRR and other banks’ deposits with RBI play a crucial role in regulating the money supply and influencing economic activity. It’s the starting point for the money creation process, where banks can create more money through lending.
A more aggressive Trump-driven trade stance, if it materializes, could raise the cost of imports and dent export competitiveness—just as India is trying to recover its industrial mojo. India is hurrying through deals for more imports from the US, including of shale oil adding to further costs.
Sectoral Impact: Monetary Push Meets Trade Concerns
The rate cut is also likely to spur affordable housing uptake, shielding the sector from any fallout in foreign investment or imported material cost spikes. Stocks such as Godrej Properties, DLF, and Kolte-Patil Developers surged after the policy, buoyed by hopes of a demand revival and better liquidity for developers.
Stocks like HDFC Bank and Bajaj Finserv jumped, reflecting optimism around stronger credit demand and a proactive central bank.
The Nifty Financial Services index rose nearly 2 percent, reflecting investor belief that India’s financial ecosystem will now be less dependent on foreign portfolio flows and more driven by internal credit momentum.
Inflation Risks
Imported inflation occurs when the cost of imported goods and services rises, leading to higher domestic prices as currency weakens. Gold and major components of India’s imports, significantly contribute to this inflation. Higher import costs raise production expenses for companies causing overall price increases.
While consumer price inflation remains under control, the risk of imported inflation is rising. A Trump-style economic strategy could mean higher tariffs on Chinese goods, pushing up global commodity prices. For India, this could translate to costlier imports of electronics, machinery, and chemicals, feeding into core inflation. The RBI seems to be pre-emptively countering this by stimulating growth now, before such inflationary pressures creep in. In many ways, the RBI is borrowing a page from Trump’s own manual: act boldly, defend your domestic economy, and expect volatility.
Rising imported inflation could lead to a depreciation of the rupee, which would further exacerbate inflationary pressures. The RBI might need to intervene in the currency markets to manage volatility.
Certain sectors, such as those reliant on imported raw materials, might face increased costs due to higher imported inflation. This could impact their profitability and pricing power. This could flare up prices of imported raw materials or goods hiking costs leading to higher prices for goods and services. It could impact economic growth if consumers and businesses reduce spending in response to higher prices.
The RBI’s sweeping rate and reserve ratio cuts are not just a response to slowing growth—they are a strategic counter to global turbulence. As trade dynamics harden and election rhetoric in the U.S. turns more inward-looking, India is sending a clear signal: we’ll build our growth engines at home, and we won’t wait for the world to stabilize.
India is not immune to global shocks, but this move ensures it isn’t caught unprepared.
Overall, the RBI’s rate cut decision is aimed at supporting growth, but a significant rise in imported inflation could alter the policy landscape and require adjustments to ensure price stability. Still the new policy if done properly could ensure Growth First, Global Noise Later.