India's Sugar High May Fizzle as RBI Weighs Rate Hikes

India's economic expansion of nearly 8% in the latest quarter from a year earlier is being fueled by earlier stimulus measures, but experts warn that this 'sugar high' will eventually fade. According to Jahangir Aziz, co-head of JPMorgan Chase & Co.'s economic research department, markets may be pricing in too many interest-rate increases. He notes that the Reserve Bank will likely deliver an initial quarter-point increase this year due to strong signals from policymakers, but is less certain about subsequent hikes.

Financial markets imply around 100 basis points of hikes this year, but Aziz cautions against rapid tightening, citing potential impacts on both investment and consumption. He attributes the current economic growth to substantial policy support in the second half of 2025, including cuts to borrowing costs and the goods-and-services tax as well as regulatory easing.

However, with excess banking-system liquidity keeping some market rates below the policy rate, tighter financial conditions could eventually weigh on business investment and household consumption. Aziz advises caution, suggesting that it's essential to wait and see the impact of rate hikes before predicting further action from the RBI.