Mkts to recoup lost ground, RBI rate hike unlikely

India’s markets are likely to recoup some lost ground after the US announced a five day reprieve for Iran’s energy infrastructure, a report said on Wednesday.

Radhika Rao, Senior Economist and Executive Director at DBS Bank, predicted that the RBI will keep rates on hold in 2026, while addressing specific pockets of strain.

The bar for rate hikes is high, due to the “stagflationary” shock and exogenous nature of the event risk, the report said.

“Foreign reserve coverage ratios are at a healthy level, providing sufficient firepower to the authorities, with signs of regular intervention presence in spot and forwards,” the bank said in a note.

Banking system liquidity returned to a modest deficit amid advance tax outflows and strong foreign exchange intervention.

The Reserve Bank of India (RBI) infused Rs 793 billion via an overnight Variable Rate Repo (VRR) auction and announced plans for a three day auction worth Rs 1 trillion.

More such auctions are likely if defence against rupee weakness continues, the report said.