Indian rupee finds some support despite rising trade deficit and commodity pressures, Societe Generale reports

Societe Generale highlights that India’s cautious RBI stance is being tested by widening trade deficit and volatile oil and gold prices, but foreign investment inflows offer some stability amid ongoing currency pressures.

Societe Generale said India’s inflation picture gave the Reserve Bank of India room to keep policy unchanged, with headline consumer prices rising to 4.45% year on year in July from 4.38% in June. The bank’s assessment is that the modest uptick supports a cautious stance, even as the rupee continues to trade under pressure from external factors.

The wider challenge for the currency is the trade balance. According to reports in Business Standard and Financial Express, India’s trade deficit widened to $31.98 billion in July from $30.4 billion the previous month, and the RBI has been active in foreign exchange markets to slow the rupee’s decline. Market reports earlier in the summer also suggested the central bank sold dollars through state-owned banks and intervened both onshore and offshore as the currency hit a two-month intraday low.

Oil and gold have added to the strain. Societe Generale said both commodities rebounded, offsetting some of the support the rupee might otherwise have drawn from the Federal Reserve’s softer policy outlook. Separate reports from Moneycontrol and Commerzbank also pointed to higher crude prices, geopolitical tensions and persistent dollar demand as recurring sources of weakness for the rupee.

There are still offsets. Societe Generale noted that non-resident investors have put $2.5 billion into Indian government bonds so far in August, helping to steady the currency. The Economic Times has also reported signs of a revival in foreign inflows, even as the RBI has continued to manage pressure with reserve-backed intervention and other measures aimed at drawing capital into Indian markets.