Markets breathed a sigh of relief as signs of de-escalation in global tensions linked to Greenland emerged, boosting investor sentiment worldwide. A fresh report from DBS Bank highlights how this development is set to stabilize market perceptions, with the Indian rupee expected to see moderated volatility and a potential rebound from recent lows.
In early trading on Thursday, the rupee clawed back 15 paise against the US dollar, reaching 91.50 after hitting record lows. Radhika Rao, Executive Director and Senior Economist at DBS Bank, attributes the prolonged negative trend to a mix of global and domestic pressures that amplified market weaknesses.
“The sharp spike in global VIX underscores fragility across all indicators, fueled by adverse geopolitical events and surging global bond yields,” Rao noted. “Emerging signals of reduced tension in Greenland offer much-needed respite to jittery markets.”
The report also flags positive trade developments, including an imminent major trade pact with the European Union, potentially announced next week. Optimism further grew from constructive US trade discussions at the World Economic Forum, reigniting hopes for global commerce.
Domestically, India’s economy shows resilience with 8% average growth in the first two quarters of the fiscal year, and projections exceeding 7.5% for the next. While a weaker rupee aids exporters facing high import duties, it has introduced imbalances in certain sectors.
India’s current account deficit remains manageable at 1.0-1.2% of GDP. However, foreign capital outflows pose the real challenge: $3 billion net equity outflows this year post-2025 repatriations, subdued bond market interest, and profit remittances offsetting FDI gains.
Looking ahead, the upcoming central budget will reveal spending impacts, with combined central and state borrowings likely to rise by FY2027. This convergence of global relief and domestic strength positions the rupee for improvement, analysts predict.