Indian Rupee: Higher Oil and trade risks weigh on INR – Commerzbank

Commerzbank’s Dr. Henry Hao and Moses Lim highlight that India’s June Consumer Price Index (CPI) rose to 4.4% year-on-year, driven by food and fuel, while the trade deficit widened to USD30.4bn. They warn the deficit could increase further if Strait of Hormuz disruptions lift Oil imports, though a potential US-India trade deal might help. USD/INR climbed 0.3% as authorities seek more Dollar deposits from non-resident Indians.

Inflation and deficit pressure INR

"June CPI surprised to the upside, rising 4.4% yoy (Bloomberg consensus: 4.2%) vs 3.9% in May, the highest reading since December 2024. Despite the pickup, inflation averaged 3.5% in H1 2026, remaining below the Reserve Bank of India’s (RBI) 4% mid-point target and its FY2026-27 forecast of 5.1%. The acceleration was driven primarily by higher food and fuel prices amid energy supply disruptions and weaker-than-usual monsoon rains."

"India’s trade deficit widened more than expected to USD30.4bn (Bloomberg consensus: USD26.5bn) vs USD28.2bn in May, driven by firm import growth. Looking ahead, the deficit could widen further if renewed disruptions in the Strait of Hormuz lift the oil import bill and weigh on exports to Gulf states. However, a potential US-India trade deal could help narrow the deficit, particularly if it provides India with tariff advantages over its competitors."

"Exports rose 15.5% yoy vs 18.0% in May, supported by robust shipments of agricultural and electronic goods."

"On the other hand, imports surged 31.0% yoy vs 20.6% in May, the strongest increase since August 2022. The rise was driven largely by a higher oil import bill, with petroleum imports increasing 40.1% vs 55.8% previously amid elevated global crude prices."

"Gold imports slowed sharply to 7.1% vs 34.0% in May, the weakest pace since March, while silver imports fell 73.6% vs -86.7% previously."

"In FX, USD/INR rose 0.3% to 95.62 yesterday, driven by higher oil prices amid renewed tensions in the Middle East. Finance Minister Nirmala Sitharaman urged state-owned banks to step up efforts to attract dollar deposits from non-resident Indians, with RBI subsidising hedging costs for banks."

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