Crude prices above $100 threaten to push India’s inflation to 6%

The sustained oil rally functions as a hidden tax on the domestic economy, straining the balance sheets of households, corporations, and the government. Banerjee projects that India’s Current Account Deficit could widen to 2.0% of GDP in FY26 as the cost of energy imports climbs. To counter these inflationary pressures, the market anticipates the central bank will deliver up to 50 basis points in rate hikes, likely split between October and subsequent meetings in December or February.

While energy markets face supply-driven volatility, other sectors remain under different pressures. High US real yields are currently preventing gold and silver from staging significant rallies, keeping precious metals within defined ranges. Meanwhile, the Reserve Bank is expected to maintain a firm grip on currency markets, actively intervening to prevent the USD/INR pair from breaching the 96.50 level. Despite global concerns regarding the Yen carry trade and synchronized rate hikes, Banerjee suggests that robust dollar liquidity continues to provide a buffer for global risk assets, even as the central bank uses open market operations to anchor domestic bond yields near 7.10%.