DBS Group Research economist Radhika Rao notes India’s onshore markets are closely watching global geopolitical risks as Oil prices rebound. The report highlights USD/INR moving to the high-95 area before facing intervention, with stronger capital inflows into deposits, offshore borrowing and equities. However, higher global Oil prices are seen limiting near-term Rupee appreciation prospects.

Rupee weighed by higher Oil

"USDINR climbed further to high-95 handle on Monday but ran into stiff intervention."

"Despite an improved outlook for capital flows—supported by stronger inflows into non-resident deposits, a pickup in offshore borrowing, and foreign investors turning net buyers in domestic equities (July inflows of US$2.1bn into equities and US$700mn into debt)—the rebound in global oil prices has clouded the near-term prospects for rupee appreciation."

"Impact of high oil prices from 2Q is still filtering through incoming high-frequency numbers. June inflation accelerated to 4.4% yoy, an 18-month high, from 3.9% in May, reflecting the continued normalisation of food prices and pass-through of pump price increases implemented in mid-May."

"Markets are also focused on the spatial and geographical distribution of the ongoing southwest monsoon. The nationwide rainfall deficit had narrowed considerably in July, from a shortfall of over 40% at the end of June, although the momentum has weakened in the past 2-3days."

"While policymakers remain vigilant to weather and geopolitical risks, the lack of discernible spillovers to demand should limit any market tendency to frontload rate hike expectations."

"June goods trade deficit widened sharply to $30bn following a 31% increase in imports (40% jump in petroleum crude purchases) and second-largest electronics up 59% yoy. Trailing the strong performance of Asian peers, exports rose 15% yoy, receiving a hand from key categories including electronics."

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