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

MUMBAI, March 24 (Reuters) - Goldman Sachs (GS) 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%.

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. (Reporting by Ira Dugal; Editing by Ronojoy Mazumdar)