A thaw in Greenland-related global tensions has lifted spirits across financial markets, with the Indian rupee showing early signs of recovery. DBS Bank’s Thursday report forecasts improved market sentiment and a tempered rupee slide, moving away from sharp declines.
Early session trading saw the rupee appreciate 15 paise to 91.50 against the dollar, stabilizing after historic lows. Radhika Rao, DBS Bank’s Executive Director and Chief Economist, links the rupee’s woes to amplified global and domestic headwinds over the past year.
“Global VIX surges signal widespread vulnerability, worsened by geopolitical shocks and bond yield spikes,” she observed. “Positive cues from Greenland tension reduction are a welcome balm for markets.”
Further tailwinds include a potential EU mega trade agreement next week and upbeat US trade talks from the World Economic Forum. At home, GDP growth averaged 8% in the first two quarters, with 7.5%+ expected ahead, underscoring economic vigor amid currency strains.
While a depreciating rupee eases exporter burdens from high duties, it breeds economic distortions. DBS notes the current account deficit is under control at 1.0-1.2% of GDP, but foreign investment flows are worrisome: $3 billion equity outflows this year following 2025 exits, weak bond participation, and FDI tempered by profit takeouts.
Central budget spending will shape trajectories, especially with projected borrowing upticks to FY2027. This blend of easing geopolitics and solid fundamentals heralds rupee strengthening and market optimism.