DBS Group Research economists Radhika Rao and Philip Wee assess how the recent surge in global crude prices and an exogenous energy shock are affecting India’s macro backdrop and the Rupee. They highlight constrained policy space, stagflation-lite risks and a weaker Rupee, while noting India’s stronger starting external position. DBS has raised its USD/INR forecast to a 95-100 range for the rest of 2026.

Under pressure against US Dollar amid energy shock

"The energy price shock has dealt two-fold impact on the economy, i.e., supply-side constraints (higher input costs, shortage of fuel supplies, shipping delays and weaker rupee), and demand-side effects (rising pump prices, slowing fuel consumption, and tougher economic environment stoked by higher inflation), besides likely El Niño impact on food and likely rural incomes."

"The policy space is relatively constrained after fiscal and policy stimulus were undertaken last year to offset tariff-related risks."

"Onset of a likely stagflation-lite shock also restraints the central bank from assuming an expansionary stance."

"Measures announced to date largely mirror steps undertaken in 2013 (taper tantrum) and 2022 (Russia-Ukraine crisis), with concurrent effort to strengthen both sides of the balance of payment equation - current account (through gold/silver curbs and lower energy demand as prices rise) and financing item i.e., capital account (attract inflows, likely other steps to boost non-FPI/FDI inflows)."

"We have lifted our USD/INR forecasts into a 95-100 range for the rest of 2026."

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