Goldman Sachs economist expects RBI to raise repo rate three more times by June
Shantanu Sengupta says the cumulative hike would be 75 basis points, with El Nino in 2027 and crude oil prices the main risks to growth and inflation.
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The Reserve Bank of India (RBI) recently announced a hike in the repo rate, a decision that has come as a big blow to borrowers. But the blow may not be a one-time affair. Shantanu Sengupta, Goldman Sachs' chief India economist, expects the RBI to raise the repo rate three more times.
According to Sengupta, the central bank could raise interest rates three more times by June, taking the total increase to 75 basis points. Even so, he is confident that India's economic growth will be around 7 per cent.
On the timing of the hikes, Goldman Sachs economists said the RBI could raise rates in December, February and April/June.
Sengupta described El Nino as a threat for 2027. He said El Nino poses a bigger threat in 2027 than it did in 2023, one that many players in the financial markets have not yet fully considered. In his view, its impact could be quite severe.
Sengupta said he expects the impact of El Nino on the kharif crop to be minimal. He also believes the current level of stocks will help keep inflationary pressure in check in the near future. "In our view, El Nino is a threat whose impact will become clearer later. Low water levels in reservoirs could damage the rabi, or winter, crop," he said.
Sengupta said lower stock levels by 2027 could push inflation higher. "The 2027 El Nino could hurt economic growth and cause high inflation," he said.
In Goldman Sachs' assessment, crude oil poses the biggest risk. Prices are likely to stay between $85 and $95 a barrel. "If crude oil prices actually stay at $100 a barrel or above, it will have a big negative impact on economic growth and inflation," Sengupta said.
He said earnings growth this year is expected to be around 15 per cent. Foreign investment inflows have been weak. Foreign investors are pulling money out of India and focusing on AI-related opportunities in countries such as the US, China, South Korea and Taiwan. "The world is moving towards AI. The challenges we face at present are mainly external," Sengupta said.
