Goldman Sachs reduces India’s GDP growth forecast: Economy to grow at 5.9% in 2026; Repo rate likely to increase by 0.50% due to war-crude oil prices

Global investment bank Goldman Sachs has reduced India’s economic growth forecast for the year 2026. According to the latest report of the bank, India’s GDP growth is now expected to be 5.9%, which is much lower than the 7% estimate made before the Iran war.

Goldman has warned that to control rupee weakness and inflation, RBI may have to increase interest rates by 0.50% (50 basis points).

Crude oil prices spoiled the calculations

Goldman Sachs has cited the biggest reason for cutting growth estimates as the problems in crude oil prices and supply. The report said that the supply of oil from the Strait of Hormuz may remain closed till mid-April.

India imports most of the oil it needs, hence the cost of oil has a negative impact on the country’s foreign exchange reserves, fiscal deficit and inflation.

Brent crude may go up to $115

Analysts of the bank believe that the average price of Brent crude could be $105 per barrel in March and $115 per barrel in April. However, it is expected to fall to $80 per barrel by the fourth quarter of the year (October-December).

In view of this instability, Goldman had also reduced India’s growth forecast to 6.5% on March 13, which has now been reduced further.

Inflation expected to reach 4.6%

According to Goldman Sachs, inflation rate in India could reach 4.6% in 2026. Earlier the bank had estimated it to be 3.9%.

However, it is still in the Reserve Bank’s comfort zone of 2% to 6%, but the falling value of the rupee may increase RBI’s concern.

Interest rate may increase by 0.50%

The report said that RBI may increase the repo rate by 0.50% to support the falling rupee and prevent the ‘second round effect’ of inflation.

Market experts even believe that in the coming year, we may see 3 to 4 increases of 0.25-0.25% (total 0.75% to 1%).

Rupee falls 4% against dollar

The Indian rupee has weakened by 4% against the dollar so far this year (2026). Last year also a decline of 4.7% was seen. When the rupee weakens, imports become expensive, which increases the prices of goods in the retail market.

Current account deficit will increase

Goldman has estimated that India’s current account deficit could reach 2% of GDP in 2026. It was 1.3% in the October-December 2025 quarter. High oil prices directly increase this deficit.

What is ‘Strait of Hormuz’ and why is it important?

It is a narrow sea route located between Oman and Iran. About 20% of the world’s crude oil passes through this route. If this route is closed in case of Iran war or any other tension, then the supply of oil in the global market stops and the prices increase rapidly.

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