Investor confidence surged Thursday as geopolitical risks tied to Greenland appeared to diminish, providing a lifeline to global markets and particularly the Indian rupee. DBS Bank’s latest analysis predicts smoother sailing ahead, with reduced rupee depreciation rates despite ongoing fluctuations.
The currency opened stronger, gaining 15 paise to trade at 91.50 versus the dollar, recovering from its weakest levels. Senior economist Radhika Rao explained that negative sentiments since last year were exacerbated by international volatility and local factors.
Rising global VIX levels reflected broad market distress, intensified by geopolitical flare-ups and climbing bond yields, Rao said. The easing Greenland situation marks a pivotal shift, injecting positivity into trading floors.
Buoyed by prospects of a landmark EU trade deal announcement soon and encouraging US negotiations at Davos, markets are optimistic. India’s robust economic backdrop—8% growth so far this fiscal year and over 7.5% forecasted next—contrasts with currency pressures.
Exporters benefit from the rupee’s softness amid elevated import costs, but it risks sectoral distortions. The current account deficit is contained at around 1-1.2% of GDP, per DBS. Concerns linger over FII flows: equity markets saw $3 billion exits this year after 2025 outflows, bond inflows remain tepid, and FDI is partially eroded by dividend repatriations.
The report anticipates visible effects from government expenditure in the central budget, with rising borrowings through FY2027 for center and states. As global tensions cool, expect rupee stabilization and market rebound, the bank forecasts.
