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Informist, Friday, Jun. 5, 2026

 

By Shubham Rana

 

NEW DELHI – India's GDP grew faster than expected in the March quarter, with the rollover effects also evident in high-frequency data for the June quarter, raising expectations that the Monetary Policy Committee could raise interest rates at upcoming meetings to control inflation without substantially hurting growth.

 

The Indian economy grew 7.8% in Jan-Mar, driven by the services sector and investments, data released Friday by the statistics ministry showed. Economists polled by Informist had expected March-quarter GDP growth at 7.3%, with the highest estimate being 7.7%.

 

Economists said the latest GDP data show little sign of a slowdown in economic activity in the March quarter despite the war in West Asia, which has pushed up energy prices and disrupted supplies. "Strong carryover momentum in domestic demand (especially investments) suggests that growth can remain resilient even if oil prices average USD90–95 per barrel over FY27," ANZ Banking Group said in a report.

 

"The GDP data for Q1 (Jan-Mar) show that India's economy continued to grow at a very healthy clip, and more timely indicators point to resilience in the face of the energy shock," Shilan Shah, deputy chief emerging markets economist, Capital Economics, said in a note. "There is little in the data to prevent the RBI from tightening policy over the coming months as inflation rises."

 

The RBI's Monetary Policy Committee earlier Friday left the repo rate unchanged at 5.25% while flagging rising risks from the energy price shock. While the committee's decision was in line with expectations, a few economists saw the possibility of a repo rate hike to defend the rupee, also given that inflation is expected to rise.

 

The RBI raised its CPI inflation projection for the financial year 2026-27 (Apr-Mar) by 50 basis points to 5.1%, indicating risks from an energy price shock and below-normal monsoon rainfall. In fact, the RBI projects CPI inflation to rise to 5.9% in Oct-Dec, just shy of the upper bound of the 2-6% tolerance range.

 

Talking to reporters after the rate decision, RBI Governor Sanjay Malhotra said the central bank does not take action for every deviation in inflation from the medium-term target of 4%. Any such move can have "consequences which can be disproportionate for growth", he said.

 

At present, the impact on inflation is seen as being more significant than on growth. The central bank lowered its growth forecast for FY27 by 30 bps to 6.6%, reflecting the impact of higher energy prices. This reduction is less stark than the rise in inflation projections.

 

"We expect growth to be closer to 6.4%," economists at ANZ Banking Group said. "The broader point is that, despite elevated oil prices, growth is likely to remain resilient around 6.5% and may not constrain the rate hikes warranted by rising inflation. We now expect a 25-bp rate hike in August."

 

Expectations of a repo rate hike are rising, even though economists may have different views on the timeline. Economists at HSBC see a 25-bp hike at the next meeting of the rate-setting panel while economists at Barclays expect a rate hike only in 2027. The Monetary Policy Committee seems to be waiting for evidence of generalised price pressures arising from the supply shock before making any rate decisions, the economists at Barclays said.  End

 

Edited by Rajeev Pai

 

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