Indian Markets May Rebound After Iran Reprieve; RBI Likely to Hold Rates: Report
New Delhi, March 25, 2026 – India’s financial markets are expected to recover some lost ground after the US announced a five-day reprieve for Iran’s energy infrastructure, easing immediate geopolitical concerns, according to a report by DBS Bank.Radhika Rao, Senior Economist and Executive Director at DBS Bank, said the Reserve Bank of India (RBI) is likely to keep interest rates on hold in 2026, while addressing specific areas of economic stress.
The report noted that the threshold for rate hikes remains high, given the stagflationary nature of the current global shock and external risks.
India’s foreign exchange reserves remain strong, providing policymakers with adequate capacity to manage volatility. The report also pointed to active intervention by authorities in both spot and forward currency markets.
Liquidity in the banking system has moved into a modest deficit, driven by advance tax outflows and foreign exchange interventions. To manage this, the RBI injected ₹793 billion through an overnight Variable Rate Repo (VRR) auction and announced a three-day ₹1 trillion auction, with more such measures likely if pressure on the rupee persists.
Bond markets are expected to stabilize slightly, with the 10-year yield projected in the 6.70–6.78% range, while the Indian rupee may trade between 92.80 and 93.50 against the US dollar, the report said.
However, analysts cautioned that a sustained recovery in market sentiment will depend on clarity around the reopening of the Strait of Hormuz, a key global energy route, which would help stabilize oil prices.
Recent market volatility saw a spike in India’s VIX (volatility index), a 2.5% decline in benchmark equities, a record low rupee, and a rise in bond yields.
As a net importer of oil, India faces risks from higher energy prices, which could widen the current account deficitand weaken capital inflows.
Meanwhile, petroleum dealer associations have assured that there is no fuel shortage, with adequate stocks available from major public sector companies such as HPCL, IOCL, and BPCL.
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