JPMorgan's Jahangir Aziz believes India's economy is experiencing a "short-term euphoria" driven by earlier stimulus measures, an effect that will eventually fade. He also cautioned that the market may be pricing in too many rate hikes.

The co-head of the investment bank's economic research division said in an interview on Friday that the Reserve Bank of India (RBI) is highly likely to deliver its first 25-basis-point rate hike this year, partly because policymakers have already signaled a strong inclination toward tightening. However, he expressed uncertainty about the subsequent policy trajectory. Financial markets currently anticipate a total of roughly 100 basis points in rate increases this year.

"The economy is in a phase of short-term euphoria. You need to consider what happens once that euphoria wears off," Aziz said. "Once rate hikes begin, both investment and consumption are likely to take a hit."

Aziz noted that India's robust year-on-year economic growth of nearly 8% in the latest quarter must be viewed in the context of massive policy support implemented in the second half of 2025. Those measures included rate cuts, a reduction in the Goods and Services Tax (GST), and regulatory easing aimed at accelerating credit growth.

He pointed out that the likelihood of another GST cut is low, while rapid credit expansion is increasingly raising concerns among regulators. This presents the RBI with a difficult judgment call: how much tightening can the economy withstand?

Aziz said ample liquidity in the banking system has kept some market rates significantly below the policy rate. However, if financial conditions tighten, it would eventually weigh on both corporate investment and household consumption. "I think it's prudent to remain cautious, first observing the impact of rate hikes on domestic financial conditions and real economic activity, before determining whether the RBI will embark on a full-fledged tightening cycle," he stated.