India: Price pressures and rupee controls – DBS

DBS Group Research economist Radhika Rao assesses early post-conflict data for India, highlighting stronger wholesale inflation and modestly higher CPI. She notes that the Wholesale Price Index is more sensitive to commodity and imported costs and is likely to rise further. Rao also discusses range-bound Indian bond yields, abundant banking liquidity, and RBI’s administrative measures to slow Rupee depreciation and their impact on portfolio flows.

Inflation, yields and FX management

"Overall, price impact is likely to be more pronounced than growth in the near-term, contingent on the longevity of the geopolitical tensions."

"Compared to retail inflation, the wholesale index is more sensitive to commodity and imported price pressures and is expected to rise further due to base effects and external factors."

"For FY26, a wider trade deficit was offset by resilience in service exports, which will help to keep the full year current account deficit close to a modest -0.6-0/7% of GDP."

"On the markets end, bond yields face two-way forces and are expected to hover within 6.8-7.0% in absence of fresh signs of an escalation in Middle east tensions."

"On FX, the RBI had undertaken administrative action to put brakes on rupee’s one-way depreciation, with the USD/INR holding up above 93.00 mid-week, off near record 95.0 in Mar."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)