India’s markets are anticipated to bounce back following the US granting a five-day extension for Iran’s energy infrastructure, as per a report. Radhika Rao, Senior Economist and Executive Director at DBS Bank, foresees the RBI maintaining rates in 2026 while addressing specific areas of strain. The report highlights the significant threshold for rate hikes due to the “stagflationary” shock and external nature of event risks.
“Foreign reserve coverage ratios are deemed healthy, equipping authorities with ample firepower, with indications of consistent intervention in spot and forwards,” noted the bank in a statement. Amid advance tax outflows and robust foreign-exchange intervention, the banking system liquidity reverted to a slight deficit. The Reserve Bank of India (RBI) injected Rs 793 billion through an overnight Variable Rate Repo (VRR) auction and disclosed plans for a Rs 1 trillion three-day auction.
Further auctions are probable if defenses against rupee depreciation persist, the report indicated. Following the immediate respite, the rupee bond yield is expected to moderate, with the 10-year yield settling between 6.70% and 6.78%, while the INR stabilizes around 92.80–93.50, according to Rao. The bank emphasized that a sustainable boost in sentiment amidst market fluctuations would necessitate signs of an imminent reopening of the Strait of Hormuz, aiding in energy price stabilization.
This week witnessed a substantial surge in India’s risk indicator VIX, a more than 2.5% decline in benchmark equities, a historic low for the rupee, and an increase in bond yields. Given India’s status as a net importer of oil and energy products, it faces challenges from a wider current account deficit and feeble capital inflows amid elevated prices and delayed deliveries. Meanwhile, petroleum dealers associations have reassured the public of ample fuel availability, with sufficient stock at HPCL, IOCL, and BPCL.
