India's central bank is rolling out aggressive monetary easing to revive consumption and investment in the world's fifth-largest economy, but the payoff hinges on whether banks ramp up credit and companies want to take on more debt in uncertain economic conditions. The Reserve Bank of India on Friday cut its key repo rate by a larger-than-expected 50 basis points and slashed banks' cash reserve ratio (CRR) by 100 bps, taking advantage of cooling inflation as U.S. President Donald Trump's tariff threats add to global uncertainty. Get the latest news from India and how it matters to the world with the Reuters India File newsletter. Sign up here.
The RBI's pivot comes at a crucial moment. A strong monsoon is expected to lift rural incomes and sentiment, but urban consumption and private investment remain tepid. The policy shift is in line with the government's broader push to support micro, small and medium enterprises (MSMEs), critical to create jobs in the world's most populous country. The MSME sector contributes 29% to India's GDP, 40% of exports and employs over 60% of the country's workforce. In contrast, just 16% of overall bank credit goes towards this sector as of April, RBI data showed. By unlocking bank funds, the central bank is betting that cheaper credit will revive urban demand, stimulate SME investment, and complement the rural boost — helping broaden the economic recover
