India’s ‘Sugar High’ Warrants Caution on RBI Hikes, Aziz Says

JPMorgan Chase & Co.’s Jahangir Aziz has expressed concern about India's economy benefiting from a "sugar high" of earlier stimulus measures that are expected to diminish over time. The investment bank's co-head of economic research warned that markets may be pricing in excessive interest-rate hikes. While the Reserve Bank of India is expected to introduce an initial quarter-point increase this year, Aziz is less certain about the future course of action. Financial markets suggest around 100 basis points of hikes for the year ahead.

According to Aziz, the Indian economy's robust growth of nearly 8% in the latest quarter from a year earlier should be considered against substantial policy support in the second half of 2025. This included reductions in borrowing costs and Goods and Services Tax, as well as regulatory easing that contributed to a surge in credit growth. He noted that another round of GST cuts is unlikely, and rapid credit expansion might raise regulatory concerns.

The Reserve Bank of India now faces a challenging decision on the extent of tightening the economy can handle. Despite excess liquidity in the banking system keeping some market rates below the policy rate, tighter financial conditions could eventually impact both business investment and household consumption, Aziz said. He advised caution and observation of the effects of rate hikes on both financial conditions and real activity before concluding that the RBI will continue on a rate hiking cycle.