Goldman Sachs slashes India growth forecast, warns currency strain will force rate hike

MUMBAI: Goldman Sachs has pared its growth estimate for India for 2026, while forecasting a 50 basis points hike in policy ​rates as the South Asian economy contends with sharp ‌depreciation in its currency.

Goldman forecasts the Indian economy will grow by 5.9% in calendar year 2026 compared to its pre-Iran war forecast of 7%, it said in a ​report on Tuesday. The Wall Street bank had cut its ​growth forecast for the South Asian economy to 6.5% on ⁠March 13.

The fresh cut in growth estimate by Goldman’s analysts follows a ​change in their assumptions on oil prices and the period of disruption to ​supplies. Elevated crude prices are a key foreign exchange, inflation and fiscal risk for net energy importer India.

Goldman now expects the near-shutdown of flows through the Strait of ​Hormuz to extend into mid-April before normalizing over the following 30 ​days, with Brent crude oil prices to average $105 in March and $115 in April before falling ‌to $80 ⁠per barrel in the fourth quarter of the year.

Analysts at the bank now see inflation in India rising to 4.6% in 2026 from their earlier expectation of 3.9%.

Soaring offshore FX swaps signal anxiety over Indian rupee outlook

While inflation will remain within the central bank’s tolerance band of ​2-6%, Goldman expects ​a 50 basis ⁠point hike in the policy repo rate to counter pressures from a depreciating Indian currency.

The rupee has ​fallen 4% against the U.S. dollar so far ​in 2026 ⁠after weakening 4.7% last year. With the currency under depreciation pressure, FX pass-through to retail prices is likely to be significant, Goldman said.

The bank added that ⁠India’s ​current account deficit could widen to 2% ​of GDP in 2026, in its report.

India’s current account deficit stood at 1.3% of GDP ​in the October-December 2025 period.