India’s inflation pressures are building, with wholesale prices rising faster than consumer prices and energy costs emerging as a key risk, economists at DBS Group Research said.
Wholesale and retail inflation gaining pace
The Wholesale Price Index (WPI), which reacts more quickly to global commodity moves than consumer prices, is expected to climb further in the coming months as imported inflation and higher commodity costs feed through.
Wholesale inflation accelerated to 3.88% in March from 2.13% in February, driven largely by a sharp jump in crude petroleum and natural gas prices. Crude petroleum inflation alone surged to 51.57% in March, underscoring how global supply disruptions and higher energy costs are lifting producer prices.
At the consumer level, retail inflation measured by the Consumer Price Index (CPI) edged up to 3.4% in March, the highest in more than a year. Food inflation rose to 3.87%. Although headline CPI remains within the Reserve Bank of India’s (RBI) tolerance band, the upward trend indicates that higher wholesale costs are starting to filter through to households, raising the risk of pressure on purchasing power and sentiment.
Bonds trade in tight range as inflation and oil dominate
Indian government bond yields are projected to trade in a narrow 6.8%–7.0% band, provided Middle East geopolitical risks do not escalate, DBS economist Rao said.
The 10‑year government bond yield recently traded near 6.89%, after briefly breaching 7.1% earlier in April, the highest level in almost two years. Moves in the benchmark yield are increasingly tied to crude oil, currently around $92 a barrel, linking government borrowing costs to geopolitical developments and energy markets.
Market activity in the debt segment is being pulled by two opposing forces: moderate but rising inflation risk on one side and relatively steady domestic liquidity on the other.
Current account gap seen moderate in FY26
For the 2026 fiscal year, India’s current account deficit is expected to stay modest at around -0.6% to -0.7% of GDP.
Higher merchandise trade deficits are likely to be offset by continued strength in services exports, helping to keep external balances broadly stable despite global tensions and shifting trade flows.
RBI steps in to curb rupee slide
The RBI has moved aggressively to slow the rupee’s decline against the U.S. dollar.
After the USD/INR rate approached the 95.00 mark in March, the central bank introduced tighter rules in early April aimed at curbing speculative activity in the currency market. Measures included banning banks from offering non-deliverable forward contracts involving the rupee and capping their daily net open currency positions.
These steps helped pull the rupee back from its lows, with the exchange rate stabilizing around 93.3 and trading above 93.00 through mid‑week.
Currency stability comes with liquidity costs
While the RBI’s actions have reduced volatility and steadied the rupee, they have also thinned market liquidity and raised hedging costs.
Directional pressure on the currency is expected to remain, driven by a firm U.S. dollar and persistently high oil prices. That mix is likely to keep conditions challenging for capital flows and could prolong the phase in which pricing pressures outpace output growth.
The extent of the imbalance between inflation and growth will depend heavily on how long global geopolitical disruptions and elevated energy prices persist.
Rising Indian inflation reshaping bonds and currency? Explore how traditional finance meets crypto in our guide to TradFi and DeFi today.
Disclaimer: The content on this page is provided for general informational purposes only and does not represent the views or financial advice of Toobit. We make no guarantees regarding the accuracy or completeness of this information and shall not be held liable for any errors, omissions, or outcomes resulting from its use. Investing in digital assets involves risk; users should independently evaluate their financial situation and the risks involved. For further details, please consult our Terms of Service and Risk Disclosure.
