Mint Quick Edit | As the rumbles of war reach India, will RBI be pushed into rate hikes this year?

With the war in West Asia stretching on, estimates of its economic damage have begun to emerge. On Tuesday, Goldman Sachs slashed its outlook on India’s economic growth to 5.9% in 2026 from 7% before the war started. This is substantial, especially given the uncertainty over how long global hydrocarbon markets will stay roiled; the longer they do, the greater the hit.

With oil, gas and other Gulf-origin supplies disrupted, inflation looks set to rise. At 4.6% this year, by Goldman’s estimate, it would still be within the Reserve Bank of India’s (RBI’s) tolerance band. That is cold comfort, though. The rupee’s slide to new lows will push up the local prices of all imports, with wide ripple effects, while rupee support by RBI would be hard to sustain without a tighter monetary policy.

The American investment bank expects RBI to be pushed into raising its policy rate by 50 basis points. Should that happen, it would mark a reversal of India’s rate-easing cycle even as growth impulses come under pressure. RBI may want to keep policy support for growth going, but whether it opts for a sharper rupee slide or heavier dollar selling, keeping the cost of capital contained has begun to look difficult.