Goldman Sachs sees two rate hikes for India in 2026

Investing.com -- India's central bank signaled a cautious approach to monetary policy amid uncertainty from the Middle East conflict, according to minutes from the Reserve Bank of India's April 2026 Monetary Policy Committee meeting released Wednesday.

The MPC noted that the Middle East conflict presents a significant supply shock that has raised upside risks to inflation and downside risks to growth. Goldman Sachs maintains its forecast of two 25 basis point repo rate hikes this year, taking the repo rate to 5.75% by end 2026, with risks skewed towards back-loaded hikes.

Governor Malhotra characterized the conflict as a supply shock transmitting through multiple channels while noting that underlying inflation pressures remain contained. He said risks to the RBI's real GDP growth forecast are skewed to the downside, while headline inflation forecasts face upside risks from escalating global energy prices and possible El Niño conditions.

The Governor highlighted that the announcement of a temporary ceasefire raises the possibility of an early conflict resolution and normalization of supply chains, making a wait-and-watch approach prudent. He voted to keep the policy rate unchanged at 5.25% and retain the neutral stance.

Deputy Governor Gupta noted that underlying inflation excluding food, fuel and precious metals remains contained, with the projected increase in headline inflation mainly attributable to base effects and higher oil prices. She remained optimistic on growth, noting that robust investment rates and higher capacity utilization underpin strong economic growth.

Executive Director Bhattacharyya said supply-driven inflation warrants a different policy response than demand-driven inflation, arguing that monetary policy has limited ability to address direct effects of a supply-induced inflation shock.

External member Bhattacharya noted that the growth-inflation trade-off has deteriorated significantly since the start of the Middle East conflict. He highlighted that three-month ahead household inflation expectations rose 60 basis points in the March 2026 RBI survey.

Goldman Sachs said MPC members would want to see evidence of pass-through of higher energy and petroleum product prices in core inflation before taking any monetary policy action.

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